No one knows what Brexit means
The Pound suffered a fresh wave of selling pressure yesterday following unconvincing government rhetoric and generally negative Brexit sentiment undermining confidence. Brexit Secretary David Davis admitted that there were no impact assessments of potential outcomes despite previously stating Theresa May had read detailed summaries of the aforementioned assessments.
Sterling declined to lows around 1.3360 against the Dollar with the Euro testing the 1.1300 resistance area and no UK economic data releases. Overall sentiment recovered slightly with hopes of some headway in negotiations with the Ulster Democratic Unionist Party (DUP). No specific proposals were announced, although there were reports that a fresh offer would be made within the next 24 hours. Markets, overall, still expected that there would be some compromise agreement in order to progress to the next stage of talks.
Sterling edged back towards 1.3400 against the Dollar while the Euro retreated to near 1.1360 in choppy trading conditions. Uncertainty remained an extremely important market factor and the Pound edged lower on market open this morning, holding below 1.3400 against the Dollar as political developments continued to dominate market action.
US ADP private employment report yesterday showed an increase of 190k for November, beating expectations and meaning an expected nonfarm payrolls of 200k tomorrow. This gives a strong backbone for the Fed to rate hike next week.
Further, US labour market productivity beat expectations to a revised 3.0% for the third quarter, with labour costs decreasing 0.2% quarter on quarter. This data had little impact on market confidence overall, but there is a positive underlying sentiment surrounding the growth outlook and the Friday employment report.
The main headline for the Dollar outside of market data was Trump’s decision to recognise Jerusalem as the capital city of Israel, moving the US embassy to the new capital. This could have implications for Arab and European leaders but the financial markets have chosen to ignore this for now.
The Euro is trading little-changed on the downside around 1.1800 against the US Dollar. There has been little reaction to German industrial production unexpectedly falling by 1.4% m/m in October and the Eurozone second revision of GDP is also unlikely to spur major volatility.
The failure of the coalition talks in Germany holds few implications for the short-term growth outlook. But no clear leadership in Europe’s largest economy means progress towards deeper European integration will be delayed, if not derailed. The political climate also provides an external headwind for the Euro and counterweight to the positive influence that strengthening domestic demand has on the single currency.
Ahead today we see Q3 GDP figures in the Euro bloc are due seconded by the participation by President M.Draghi in a press conference by the BIS at the European Central Bank (ECB) in Frankfurt.
Data To Watch:
10:00 EUR Gross Domestic Product s.a. (QoQ) (YoY) (Q3)
13:30 USD Continuing Jobless Claims (Nov 24)
13:30 USD Initial Jobless Claims (Dec 1)
16:00 EUR ECB President Draghi’s Speech
19:00 USD Consumer Credit Change (Oct)