The biggest of Brexit weeks
Friday saw further mediocre economic data with November manufacturing production suffering a 1.1% year-on-year decline and the goods trade deficit was wider than expected with at £12.0bn. Construction data beat consensus forecasts and the monthly GDP estimate of 0.2% growth in November beat forecasts of 0.1% growth. The Pound had dropped before the data and was unmoved on the releases, before making significant gains ahead of the US market open.
Speculation that the government will attempt to delay Brexit beyond March 29th helped underpin the Pound’s position. Further reports, just before the close, that Article 50 would be extended triggered a further Sterling advance, hitting highs above 1.2850 against the Dollar and the Euro retreated to around 1.1200.
Markets are braced for very volatile trading this week with Theresa May expected to curry favour for her deal by warning that rejecting it would risk no Brexit. Sterling has lost ground this morning but further speculation that an EU exit would be postponed until July limited the fallout, and further “EU reassurances” are also expected later in the day. Finally, Theresa May is slated to make a speech on Brexit at 3:30pm.
Headline US consumer price inflation declined 0.1% for December with the year-on-year rate declining to 1.9% from 2.2%. The core CPI increase of 0.2% and an annual rate of 2.2% also met market expectations. The market impact was muted as the data maintained expectations that the Fed could afford to be patient on monetary policy over the next few months. A stronger reading for real earnings underpinned confidence in the spending outlook.
The Euro failed to capitalise following the inflation data and a dip back below 1.1500 against the Dollar triggered stops which pushed the single currency lower. The Dollar is up against the commodity currencies this morning as global growth fears increased.
Friday saw two prominent European Central Bank (ECB) members appear to give quite mixed messages on the future of the EU. ECB member Makuch alluded to the fact that recent economic data has been on the slide in the region and therefore a rate hike in 2019 is unlikely. This was contradicted by member Nowotny who said there could still be a rate hike.
Inflation data did nothing to help the single currency, which saw a slide against the Pound and the Dollar. The Euro seems to be tied to the performance of the Dollar, which is being affected by trade negotiations with China.
The only piece of data for the region today is EU industrial production numbers, but not much volatility is expected from this piece of news.
Data to watch:
03:07 CNY Trade Balance CNY (Dec)
03:07 CNY Trade Balance USD (Dec)
03:07 CNY Exports (YoY) (Dec)
03:07 CNY Imports (YoY) (Dec)
03:08 CNY Exports (YoY) CNY (Dec)
03:09 CNY Imports (YoY) CNY (Dec)
10:00 EUR Industrial Production s.a. (MoM) (Nov)
21:00 NZD NZIER Business Confidence (QoQ) (Q4)