Sterling bubble bursts over Brexit
PM Theresa May and her parliamentary colleagues are optimistic she can get EU leaders to bend on some terms and reach some sort of a deal before March 29th.
UK mortgage approvals data was slightly above consensus forecasts and consumer borrowing data was also above market expectations which suggested firm demand, although Sterling failed to benefit amid Brexit concerns.
EU Chief Negotiator Barnier stated that the Brexit deal cannot be renegotiated, especially on the backstop, although he was confident of finding an agreement before March 29th. Prime Minister May’s office stated that it would not be an easy process reopening the Withdrawal Agreement and would need to work with the EU to find agreement. Markets overall were concerned that deadlock would persist for now, especially with the EU unwilling to engage in fresh discussions. On the back of this, Sterling has weakened against the Euro.
The tense, ongoing trade talks between the US and China are getting tenser, as the Department of Justice files criminal charges against Chinese telecommunications giant Huawei. Despite this tension, the Dollar has held firm against the Euro and the Pound following ADP non-farm job gains of about 213,000, beating the 185,000 forecast.
The Federal Open Market Committee maintained interest rates at the 2.25-2.50% range, in line with consensus forecasts. According to the statement, the labour market had continued to strengthen and consumer spending was strong, although overall growth was described as solid rather than strong and market-based inflation measures had moved lower. The committee reiterated that it was prepared to be patient in light of global economic and financial developments together with muted inflation pressures. The Federal Reserve was prepared to use all tools including the balance sheet if interest rates could not be cut sufficiently. Chair Powell stated that the case for raising rates had diminished.
Yesterday saw the Eurozone struggle with deteriorating business confidence numbers pretty much across the board for January. The number came in below consensus and delivered the worst reading since late 2016, adding concerns to the region’s growth outlook.
Numbers out of Germany were also less than positive. The country’s GDP forecast was cut from 1.8% to 1.0% by the Economy Minister and preliminary January CPI estimates point towards slowing inflation in the region. EURUSD rose to 1.1500 but this was due to a strong Dollar.
Today sees CPI numbers out of France and Spain which will attract some interest. GDP numbers out of Spain and Italy, as well as unemployment figures from Germany and Italy,will provide a very good indication as to whether Italy is in a recession and Germany is on its way to one. Finally, GDP figures and unemployment from the EU will provide a lot of interest.
Data to watch:
07:45 EUR Consumer Price Index (EU norm) (YoY) (Jan) (France)
08:00 EUR ECB Cœuré Speech
08:55 EUR Unemployment Change (Jan) (Germany)
08:55 EUR Unemployment Rate s.a. (Jan) (Germany)
09:00 EUR Unemployment (Dec) (Italy)
09:00 EUR Gross Domestic Product (YoY) (Q4)
09:00 EUR Gross Domestic Product (QoQ) (Q4)
10:00 EUR Gross Domestic Product s.a. (YoY) (Q4)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q4)
10:00 EUR Unemployment Rate (Dec)
10:15 EUR ECB’s Mersch speech
13:30 USD Continuing Jobless Claims (Jan 18)
13:30 USD Initial Jobless Claims (Jan 25)
13:30 CAD Gross Domestic Product (MoM) (Nov)
14:45 USD Chicago Purchasing Managers’ Index (Jan)
16:00 EUR German Buba President Weidmann speech (Germany)
17:30 CAD BoC Wilkins Speech
21:30 AUD AiG Performance of Mfg Index (Jan)
23:30 JPY Jobs/applicants ratio (Dec)
23:30 JPY Unemployment Rate (Dec)