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Parliament assents, Sturgeon dissents

Parliament assents, Sturgeon dissents


This morning, there is not much left of yesterday’s constructive Sterling sentiment seen during European trading and the Pound is facing heavy headwinds both against the Euro and the Dollar as markets have clearly adopted positions for tough Brexit negotiations.

Last night the Commons voted to reject both amendments attached to the EU withdrawal Bill by the House of Lords, leaving Teresa May free to trigger Article 50. Nicola Sturgeon seized the limelight to announce a second independence referendum for Scotland. It could happen sometime between 2018 and 2019, which is probably too far in the future for the markets to start worrying and pricing in the break up of the United Kingdom. Similarly, the latest opinion polls suggest that a second referendum would go the same way as the first. While opinion polls aren’t perfect, it’s enough, at this stage, to keep UK markets calm.

We are about to enter the thick end of the Brexit negotiations. The UK may be broken up but the Pound is the strongest currency in the G10 block and the FTSE 100 is one of the leading European equity performers. The market may experience a sigh of relief once Article 50 is triggered, simply because it gets rid of the uncertainty but was always scheduled to happen by the end of March. There are no important UK eco data, suggesting trading will be dominated by the Brexit headlines.


February’s US employment trends index increased and overall confidence in the labour market remained strong with a Fed rate hike tomorrow priced in at 96% certainty. Rising inflation, together with a tighter labour market, stock market boom and strengthening global economy, has left some economists expecting that the Fed could increase rates much faster than currently anticipated by financial markets. The accompanying guidance and future rate projections will be key to short term Dollar trends.


Mario Draghi made no further comment on monetary policy yesterday and there were no further comments that the ECB had discussed raising interest rates ahead of the end of the bond-purchase programme. German bund yields edged lower on the day which eroded further potential Euro support and it was unable to hold near the 1.0700 level with a retreat back towards 1.0650 against the Dollar.

The only Eurozone data yesterday was a 2.3% fall in Italian industrial production for January which will maintain underlying concerns surrounding the outlook, although the news was overshadowed by wider political concerns.

Today’s Dutch general election has curbed Euro support, especially after the row with Turkey. As long as Geert Wilders’ PVV party doesn’t outperform the Liberals the negative impact to the Euro will likely be muted. There were no significant changes in French opinion polls with Le Pen regaining some ground lost late last week.


On the other side of the globe the Australian Dollar was little moved yesterday by a run of Chinese economic data which on balance left investors little wiser about the world’s number two economy. Retail sales rose 9.5% for the year to end-February, compared with the same period in 2016. That was some way below both January’s 10.4% gain and the 10.6% rise which markets had expected. However, the series has likely seen some impact from the early timing of the long Lunar New Year break and so economists may wait to see more data from this sector. The Aussie market like all others is focused on the US Federal Reserve.

Data to watch: All day: Dutch General Election. 7am EUR German Consumer Price Index & Harmonised CPI. 10am Eurozone Industrial Production. 3pm US Labor Market Conditions Index.


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