7th January 2019 Market Update
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🇬🇧 GBP – With each day that passes without an agreed Brexit deal, the chances of Article 50 being extended increase, with any ongoing uncertainty likely to be negative for Sterling and the UK businesses as a whole. As part of the latest update, today will be significant as it marks the return of MPs to Parliament following their Christmas break, ahead of the crucial Brexit vote which has been confirmed for the 15th January. At the moment, the most likely outcome remains a defeat for May, and possibly by a heavy margin, which could give rise to renewed talks over a no-confidence vote in the government, which is likely to be instigated by the Labour government. Away from that, other alternative outcomes which have some support in the Commons include a second referendum or a push for a Norway style deal; either option would cause a delay in the UK leaving the EU. On a positive note, it does appear a ‘No Deal’ is the least preferred outcome as this morning 200 MPs submitted a letter to May urging her to rule out the option of a No Deal Brexit. Looking ahead this week, the main points of interest away from the Commons include a speech from Mark Carney on Wednesday as well as UK GDP figures out on Friday.
🇺🇸 USD – While Brexit seems to be dragging on, the Dollar is certainly keeping things interesting for cable following Friday’s jobs report which made for interesting reading. Firstly, the number of new jobs being created increased by 312,000 alongside a net 58,000 upward revision to the past two months of data. Despite this, the unemployment rate rose from 3.7 per cent to 3.9 per cent due to a surge in the labour participation rate. In terms of wage growth – wages jumped again leaving the annual rate of wage growth at 3.2 per cent, which is the highest since April 2009. As a result of the overly positive report, we should see a fall in concerns around a potential interest rate cut. Separately, the government shutdown is adding to the sense of unease in the US, for which there remains the hope of a sudden breakthrough in negotiations. This is after the Democrats passed a bill to end the shutdown, which President Trump has since threatened to veto. Looking ahead this week, the key events will be surrounding US inflation alongside speeches from Federal Reserve members who are expected to be cautiously optimistic. This is after Fed Chairman Jerome Powell said on Friday that the Fed would ‘be patient as it watches to see how the economy evolves.’
🇪🇺 EUR – In terms of the Euro, Friday saw the release of the December Eurozone CPI which slowed to 1.6%, below the expectations of 1.8%, and also below the ECB target of 2.0%. Despite this, the impact on the Euro was relatively subdued given that there are currently 0 hikes being priced in for 2019, meaning that slower inflation than the target doesn’t have too much significance because if inflation is low, interest rates do not need to be increased to control it. As far as overall sentiment goes, there remains a very little argument for upside when it comes to the Euro as recent data releases have served to confirm the slow growth environment. That being said, this morning saw Retail Sales data in Germany surprise on the upside as we await the overall figures for Europe. Retail sales often provide an important gauge for consumer spending, while Wednesday’s unemployment release out of the Eurozone should shed some light on the state of the labour market. In addition, Friday will see the release of December’s Economic Sentiment Indicator, which has the potential to fall short of the mark due to the ongoing Yellow Vest protest movement in France.
GBP: Brexit vote confirmed for the 15th January as MPs set to reignite Parliamentary debate;
USD: Strong Jobs report helps to reduce fears of a potential US interest rate cut, while government shutdown goes on;
EUR: Eurozone CPI disappoints on Friday as investors hope for more positive news from Retail Sales and Unemployment data this week.
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