4th January 2019 Market Update
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🇬🇧 GBP – This morning saw reports emerge of a YouGov survey which indicated that 59 per cent of Theresa May’s Conservative Party were opposed to her Brexit deal as it currently stands. In what is the first indication of sentiment following a Christmas period in which May’s team supposedly attempted to convince MP’s of the essential nature of the deal – it appears her attempts have fallen on deaf ears. This is after the PM delayed the original vote on December 11th due to fears of it being defeated. However, the delay appears to have had little success as reports emerged this morning that the DUP, the Northern Irish Party that props up the current government, have also said that they would not support the current deal. In addition, between the choice of a ‘No Deal’ versus the current Brexit deal, 64 per cent of Tory MP’s asked were happy to leave the EU in three months with no signed agreement. As such, whether you believe this to be the desired outcome or not, the government – perhaps reluctantly, have stepped up their planning for a No-Deal Brexit. Datawise, the UK released its December Services PMI this morning which came in above expectations at 51.2 helping to support Sterling, without causing a significant jump in the rates. Looking ahead to the weekend, Sterling’s fortunes are likely to be dictated by additional Brexit headlines.
🇺🇸 USD – Market sentiment picked up slightly yesterday following the confirmation that talks would take place between China and the US next week. As such, some safe-haven flows have moved away from the Dollar and towards more riskier assets. This is amidst a backdrop of weaker market confidence and ongoing concerns of slowing global growth. Linked to this, the new year has brought with it murmurs of 2019 which could have between 0 and 3 rate hikes, while some more bearish analysts have now begun to calculate the potential of an interest rate cut. In terms of the Fed’s view, Dallas President Robert Kaplan spoke yesterday of his desire to take ‘no further action’ on interest rates until issues of slowing global growth, widening credit spreads and tightening financial conditions were resolved. Kaplan’s view supports the overall market consensus that the Dollar is likely to weaken off considerably in 2019, having had a particularly strong 2018. Looking ahead today, we have the release of US non-farm payrolls which has the potential to be unexpectedly upbeat, following a strong ADP release yesterday. In terms of interest rates – wage growth will be the key figure to watch; if we see a sharp rise then we could well see the option of an interest rate increase come back into play. In addition to today’s release, we will also hear from Fed President Jerome Powell, Janet Yellen and Ben Bernanke who are set to speak at the American Economic Association in Atlanta.
🇪🇺 EUR – With this week marking the 20th anniversary of the implementation of the common currency, the Euro has something to celebrate. Given that its implementation was fraught with concerns and trepidation about its longevity, the single currency continues to prove the naysayers wrong. That being said, as we have covered previously – there remain a number of issues to look at in 2019 including the UK’s imminent departure from the EU, the populist Italian government’s attacks on Brussels and the spread of nationalism in the East. While these are longer-term issues, the currency continues to trade largely sideways with an overall leaning towards the downside as a result of slowing growth and inflation below ECB expectations. Looking ahead today, in terms of data we will see the release of Eurozone flash CPIs with expectations that inflation will tick down to 1.8 per cent on a yearly basis while core inflation is expected to remain steady at 1 per cent. That being said, any larger moves today in EUR/USD are expected to come as a result of the jobs data out of the US.
GBP: Conservative and DUP MP’s say no to May’s deal as it currently stands;
USD: No clear indication on the direction of interest rates in the US as the market seeks further clarity from jobs data and the Fed;
EUR: Euro reaches its 20th anniversary despite ongoing issues across the bloc.
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