5th February 2019 Market Update
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🇬🇧 GBP – Following last week’s disappointing UK January manufacturing and construction PMI, today’s services PMI came out below expectations as a number of 50.1 indicated minimal growth for the UK for December. The primary cause for this is that firms are remaining cautious in their yearly planning in light of Brexit uncertainty. As such, Sterling is trading slightly lower this morning following the release – but as always, any positive Brexit headlines have the power to send it higher again. For example, were Prime Minister Theresa May to somehow convince the EU to give the UK some concessions on the Irish Backstop issue, we could see a significant Sterling rally. However, such an outcome remains unlikely for now as the EU continues to dig its heels in with no real progress made yesterday, meaning the next most significant steps could well be the amendments proposed by MPs in parliament next week. That being said, some wiggle room was provided by Angela Merkel yesterday who said that the EU were willing to listen to ideas to solve the ‘riddle’ of the Irish border, but that any solutions must be suggested by the UK. In the meantime, we have Theresa May in in Northern Ireland today as she attempts to convince the people that she can avoid the implementation of a hard border between themselves and Ireland. In addition, Stephen Barclay’s ‘Alternative Arrangements’ working group will meet for a second day today to asses possible suggestions to break the current deadlock.
🇺🇸 USD – Today’s big news out of the US will be President Trump’s State of the Union address, where investors will be looking for any comments on trade policies as well as any indication that Trump may look to use emergency powers to build the wall between the US and Mexico. Firstly, with regards to the trade policies, Trump is likely to come out with some positive rhetoric around progress with China, no doubt punctuated with some thinly veiled threats as he seeks to promote his ability to negotiate a ‘great deal’ with President Xi. In terms of the border wall, this remains the key issue over which the government was shutdown for the majority of January and any indication that he was willing to use his Presidential powers to resolve the issue would be negative for risk. Knowing Donald though, he is unlikely to go this far and instead will use the threat of it as a means of negotiation. In terms of data, US ISM non-manufacturing for January is set to remain within expansionary territory, which should help the dollar to build on gains in the wake of strong US data last week. Indeed, this data, alongside developments in Europe this week have helped the greenback move to one week lows against the euro ($1.1416) and the pound ($1.3031) in early trading this morning.
🇪🇺 EUR – Data remains the focus for the Eurozone as this morning’s expectations are for softer December Eurozone retail sales following an extended period of weaker data out of Europe. This will likely confirm the ECB’s cautious approach, especially following news that headline CPI has fallen further below their 2 percent target. As well as this, we has a stream of producer price data out yesterday which indicated that the price index contracted 0.8 percent MoM in January, thereby dragging the yearly rate down to 3 percent, from the 4 percent registered last month. On the plus side, this morning’s services PMI came out marginally better than expected, at 51.2 versus 50.8 as the Eurozone continues to battle on despite slowing euro-area growth, stalling inflation and lingering political risks which are serving to hold investors back. This scepticism is being reflected in money markets where investors see the ECB shunning a rate increase altogether for 2019.
GBP: In the absence of any Brexit progress, UK data continues to disappoint as uncertainty is impacting businesses’ ability to plan ahead;
USD: Today’s State of the Union address is the headline item as Trump will provide his views on the important issues of trade and the border wall with Mexico;
EUR: The euro continues to battle on despite largely disappointing CPI data out yesterday as this morning’s PMI’s come out better than expected.
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