5th December 2018 Market Update
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🇬🇧 GBP – Sterling hit new 17-month lows yesterday after PM Theresa May’s government was extraordinarily defeated in three Brexit-related votes as MPs in Parliament sought to reassert themselves on the process. As a result of the votes, the government must now publish in full, the legal advice that it has so far collected on Theresa May’s deal; this is something they had no intention of doing. In addition, the government also lost a vote to those MPs who were seeking to change the parliamentary process if the current Brexit deal is rejected in the Commons next Tuesday. As a result of this – as opposed to the government just taking on board whatever ministers tell them, MPs will now be able to exert more influence on what the government actually do in terms of the UK’s exit from the EU. On the plus side – this could reduce the likelihood of Britain leaving the EU without a deal. Either way, these three sobering defeats should help Theresa May realise the apparent futility of her attempts to gain support. As a result, Sterling remains at the bottom of its current range, as we await to see to what extent a defeat next Tuesday is being priced in by the market. Data-wise, the bad news keeps on coming for Sterling as this morning’s UK Services PMI hit a new 28-month low, coming in a great deal lower than expected at 50.4 versus a consensus expectation of 52.5.
🇺🇸 USD – The Dollar remains under pressure this morning despite making some modest gains over the past 24 hours. This is after the US Treasury Yield Curve has begun to invert between the 3-Year and 5-Year notes. Whilst this all sounds very technical, the inversion simply indicates a growing concern about a potential US recession which would likely cause the Dollar to soften longer term. This latest news comes following the trade truce made between China and the US over the weekend, which had already caused the Dollar to weaken as the flock towards it as a safe-haven currency was reduced. As an update, yesterday China finally broke their silence on the truce claiming that the meeting with Donald Trump was ‘very successful’, without going into much more detail. Despite all of this Dollar weakness, there is every chance that perceptions of the US economy could improve as early as Friday as we await the release of data around the solid US labour market. In turn, this would help markets to in the very least – ‘pencil’ in more Federal Reserve tightening which would help the Dollar to strengthen as we move toward 2019. As a reminder – U.S. markets are closed today to mourn the recent death of former U.S. President George H.W. Bush.
🇪🇺 EUR – In the Eurozone, attention remains on the negotiations between Italy and the European Commission as a revised 2019 draft budget could be announced at any moment. This is after the Euro area has shown no indication that it might rebound as this morning’s manufacturing and services PMI fell to 52.7 in November from 53.1 in October. While this reading exceeded earlier estimates, the figure is the lowest since September 2016 as Brexit and trade war worries weigh on sentiment. This is now having a knock-on effect on the labour market for which employment expanded at its slowest pace in nearly 2 years with business optimism at its lowest level since 2014; all of which is likely to slow Eurozone growth as we move into 2019.
GBP: Sterling recovers from 17-month lows after UK government suffer no less than three defeats in the House of Commons yesterday;
USD: Concerns over US growth helping to soften the Dollar ahead of Friday’s Labour market data release;
EUR: Data continues to indicate a slowdown in growth within the Eurozone.
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