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News in Brief - 31/01/2018

GBP

Monex  
 

Sterling rallied against both USD and EUR yesterday, shrugging off the latest political infighting after Mark Carney gave a reasonably hawkish assessment of monetary policy prospects in testimony to lawmakers. Speaking to the House of Lords economic affairs committee, Carney called for the Retail Price Index, a statistical relic that has been widely criticised for exaggerating price pressure, to be retired from use as a benchmark. Carney also made some fairly optimistic statements about the UK economy, while defending the Bank of England’s approach to forecasting and policy. Overnight the GfK Consumer Confidence index was released, showing a slight improvement in optimism, while the British Retail Consortium’s Shop Price Index showed prices in the tracked stores falling 0.5% year on year.

EUR

The euro was out of the spotlight somewhat yesterday, but it did make some progress in the morning as fixed income continued to sell off in placed. Despite regional German CPI data being a mixed bag, the nationwide index fell 0.7% in January. Elsewhere France’s GDP grew by slightly more than expected in the fourth quarter of 2017, almost equalling the rapid 0.7% quarterly growth seen in Spain. The flash estimate of eurozone growth in the quarter was an impressive 0.6%. Today at 10:00 GMT monthly eurozone inflation figures will be released.

USD

USD weakened overnight as Donald Trump’s State of the Union address was characteristically light on policy detail. In addition to his usual policy talking points such as immigration, Trump lauded the economic progress of the US under his presidency, although it could be accurately described as a continuation of the growth trends seen over the past several years – in fact, job creation actually slowed slightly in 2017 compared to 2016. Some references to infrastructure spending were there, but no detail on how a spending programme would be funded. Today is likely to be at least as significant, if not more so, for USD, with the the ADP estimate of non-farm payroll growth due for release at 13:15 GMT, followed by Pending Home Sales at 15:00. Later in the evening, the Federal Reserve’s latest rate decision will be announced, accompanied by a potentially revised statement.

 
 
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UK News - 31/01/2018

Reuters: May says will give parliament ‘appropriate analysis’ before Brexit deal vote.  British Prime Minister Theresa May said on Wednesday that lawmakers would be given official analysis on any Brexit deal before they are asked to approve it, dismissing a leaked document showing the economy would be worse off under all exit scenarios.

Telegraph: Theresa May says ‘I won’t quit’ – but is it really her call? Unfortunately for Mrs May, it’s clear that she is not an all-powerful leader able to reign over her party for the next decade.

News in Brief - 30/01/2018

GBP

Sterling continued to sell off yesterday, as the global bond market rout deepened and USD benefited, while political dramas continued. David Davis and Michel Barnier traded indirect barbs over the length and nature of the Brexit transition period, while internecine fighting continued among the Conservative Party. This has seen the leak of impact reports on various Brexit scenarios by the Treasury. The reports are consistent with mainstream economic analysis and suggest worsening consequences for growth in the long run depending on how much single market access is lost. This morning’s main release will be Money and Credit figures from the Bank of England, and Mark Carney will testify to the House of Lords Economic Affairs Committee at 15:00 GMT.

EUR

The euro was on the back foot against USD this morning, but has popped higher on slightly firmer than expected German regional inflation data. Data and more ECB chatter are the morning’s themes for the single currency, with French Consumer Spending contracting in December after a spike in November, while Spanish GDP rose 0.7% in Q4. German Consumer Price Index inflation will be released on a regional basis throughout the morning, culminating in the nationwide release at 13:00 GMT.

USD

Higher bond yields have lifted USD this week, as markets ponder the prospect of upside risk to rates and inflation in the world’s largest economy. Some data will be released in the afternoon, but by far the day’s most significant event for USD will be Donald Trump’s first State of the Union Address at 14:00 GMT. Two themes will be highly relevant for USD and markets: infrastructure spending and protectionism. Donors to Trump’s campaign fund can look forward to seeing their names appear on an official livestream. The Case-Shiller House Price Index will be released at 15:00.

UK News - 30/01/2018

Reuters: Britain will be worse off in every Brexit scenario, government analysis says. LONDON (Reuters) – Britain will be worse off after Brexit in every scenario examined, according to an analysis compiled by British officials, BuzzFeed News reported on Monday. Britain is due to exit the EU on March 29, 2019, but there are deep divisions inside Prime Minister Theresa May’s government and party about what sort of relationship should replace 46 years of membership.

Reuters: EU offers Brexit transition, but UK must ‘accept rules’. The European Union offered on Monday to let Britain keep its membership benefits for 21 months after Brexit to help businesses adapt but it rejected the idea that London could block new EU laws during the transition.

Telegraph: Leaked Brexit economic impact report attacked as ‘highly suspicious’ by furious Eurosceptic MPs. Eurosceptic MPs have called for a leaked Brexit economic impact assessment to be “pushed to one side” because it is “highly speculative” and the timing of its emergence is “highly suspicious” . Leading Brexiteers have dismissed the report and said it should be taken “with a pinch of salt” because such forecasts have proven to be inaccurate in the past.

News in Brief - 29/01/2018

GBP

Sterling traded flat against USD on Friday and lost ground against the euro, despite Friday’s data including a better than expected print for UK Gross Domestic Product, at 0.5% for Q4 last year against an 0.4% forecast reading. The weekend’s political news included increased dissent from the House of Lords over the EU withdrawal bill, which will be debated this week. Aside from ongoing political developments, Bank of England Governor Mark Carney will testify to the House of Lords Economic Affairs Committee on Tuesday, and Manufacturing and Construction Purchasing Managers Indices will be released on Thursday and Friday.

EUR

Friday was a quiet end to a spectacular week for the euro, with the single currency trading virtually unchanged against USD compared to Friday morning, after advancing sharply earlier in the week. A large number of national data releases will fill this week’s data calendar, including French, Spanish, and Eurozone Gross Domestic Product on Tuesday, and French, Spanish, and Eurozone Consumer Price Index inflation on Wednesday.

USD

The dollar is trading with a glimmer of hope this morning, and has rallied slightly, after being utterly routed against a broad range of currencies last week. The week’s calendar is filled with highly relevant USD entries, beginning with today’s Personal Consumption Expenditures Price Index at 13:30 GMT. President Trump will give the State of the Union speech on Wednesday, where he is expected to highlight the strong economic performance of the US since his election. Wednesday also sees Janet Yellen’s last Federal Reserve Open Market Committee meeting as chair, with Jerome Powell set to take over, though with no interest rate change expected, and no scheduled post-announcement press conference, little movement is expected for the USD. On Friday, the Non-Farm Payrolls report will be released.

UK News - 29/01/2018

Reuters: Challenged on all fronts, May faces pressure over Brexit law. Prime Minister Theresa May came under further pressure over her Brexit blueprint on Monday, with members of the upper house of parliament saying there were “fundamental flaws” in a law crucial to the departure

Telegraph: Why Jeremy Corbyn’s 2017 general election ‘youthquake’ was a ‘myth’. Labour’s better than expected 2017 general election was not the result of a “youthquake”, new research has shown. An analysis of voter turnout at last year’s poll has revealed that Jeremy Corbyn did not persuade young people who previously failed to vote to back him as was widely believed.

News in Brief - 26/01/2018

GBP

After running rampant over the last two weeks sterling appears to be taking its foot off the pedal a bit this morning. Chancellor of the Exchequer Philip Hammond remarked he hoped the UK and European Union economies would only move “very modestly apart” after Brexit, only to be slapped down by Prime Minister Theresa May later. Today at 9:30 GMT Preliminary Q4 Gross Domestic Product figures are announced, telling us more about how the UK economy is weathering uncertainty surrounding Brexit and the financial health of its households.

EUR

The single currency reached the highest point since December 2014 yesterday, only to drop off significantly in the overnight market and to regain the offensive this morning. Despite mentioning how the recent euro strength was “worth monitoring” in his press conference yesterday, European Central Bank President Mario Draghi did not mention any specific levels at which the ECB would intervene, which markets took as a message the risk to inflation was insufficient for the ECB to change its policies, triggering the initial euro strength. Draghi did criticize comments from US Treasury Secretary Steven Mnuchin that a weaker US dollar was “good” for US Trade, referring to an agreement between the major economies to not verbally intervene in currency markets. Apart from M3 Money supply at 9:00 GMT the Eurozone data calendar is empty, which gives markets time to digest yesterday’s ECB press conference.

USD

Statements from policymakers have driven USD this week, but after USD reached multi year lows on a variety of crosses, it took comments from US President Donald Trump himself to stem the losses and prompt a rally. Speaking in an interview to CNBC, Trump downplayed Treasury Secretary Mnuchin’s remarks that appeared to praise a weaker dollar and said they had been misinterpreted, causing USD to rally, although the euphoria has proven short lived and the greenback is again under pressure this morning. After this week’s messaging crossfire, Trump himself will address Davos at 2pm GMT, in what has the potential to be a historic moment in the style of Chinese premier Xi Jingping’s address in 2017.

UK News - 26/01/2018

Telegraph: Donald Trump backs down on Britain First: US president says he is ready to apologise over far-right videos. Donald Trump has performed a climbdown in a row with Theresa May over his sharing of inflammatory videos by the far-right Britain First group

Guardian: UK GDP grows faster than expected at 0.5%. The British economy grew at a faster rate than expected in the three months to the end of December. GDP grew by 0.5% in the fourth quarter of 2017 following expansion of 0.4% in the three months to September, according to the Office for National Statistics. City economists had forecast growth of 0.4%.

News in Brief - 24/01/2018

GBP

Sterling is heading for its sixth consecutive week of gains against the greenback as yesterday once again saw improved post-referendum highs, while it also showed most of the other G10 currencies its heels. The move on cable was caused mostly by weakness in the US dollar, although risen hopes for a favourable trade deal with the European Union has created a more bullish environment for the sterling lately as well. Today December’s labour market data is published at 9:30 GMT containing Unemployment figures and the vital Average Earnings Index. The latter tells us something about whether British workers will see a real wage gain in the high inflation area known as the United Kingdom.

EUR

The single currency put a fresh 3 year high on the boards against USD this morning, although it sold off slightly against most notably JPY and CHF yesterday. The European Commission’s measure of Consumer Confidence in the Eurozone showed a headline reading of 1.3, which is but a whisker away of its all-time record of late 2000. Throughout the morning the German and French Services and Manufacturing Purchasing Managers Indices are released. At 9:00 GMT these readings together with data from the other Eurozone countries form the PMI readings for the entire currency area. Many of the sub-indices reside near multi-year highs, a feature which is expected to be repeated in this edition.

USD

The dollar once again had an off day against the entire G10 currency board and the DXY dollar is now at its lowest point since 2015 after two consecutive weeks of losses. Markets seem unimpressed by the solution to the government shutdown as it seems to be only a short term stay of execution. The Republicans and Democrats still seem miles away from reaching a compromise on immigration legislation, something which is likely to be needed before Democrats are willing to support any further increases of the debt ceiling. Today at 15:30 GMT the US Crude Oil Inventories are announced.

UK News - 24/01/2018

Reuters: Global growth to roll to highs not seen in eight years The global economy is expected to grow at a robust pace this year and reach an altitude not seen since 2010, as momentum builds in developed economies and inflation revives, Reuters polls of over 500 economists show.

Reuters: Euro moves a side effect, not the objective of ECB policy: Draghi FRANKFURT (Reuters) – The European Central Bank’s bond buys have not led to “statistically significant” moves in the euro and exchange rate shifts are a mere side effect, not the objective of policy, ECB President Mario Draghi said in a letter on Wednesday.

Financial Times: Mnuchin says weaker dollar ‘good’ for US trade, opportunities Steven Mnuchin arrived at the World Economic Forum in Davos with an uncompromising message to the world that the Trump administration’s America First policies were good for the US and the rest of the world.

News in Brief - 23/01/2018

GBP

Sterling surged yesterday, reaching a fresh post-referendum high against the US dollar, and put in an equally solid performance against the euro. Philip Hammond was quoted as saying the UK will be seeking to discuss future trading relationships with the EU and other partners at this week’s World Economic Forum in Davos. For now, market participants seem to be giving little weight to repeated assertions from European leaders that sectoral deals, such as for the finance industry, will not be able to replicate the benefits of full single market access. Government borrowing figures will be released today at 09:30 GMT, followed at 11:00 by Industrial Order Expectations from the CBI.

EUR

The dollar has taken only a modicum comfort from the passage of stopgap legislation to end the current government shutdown, possibly due to the fact that yesterday’s deal was little more than a delay of the immigration fight. Amid the drama of yesterday’s senate developments, the administration also approved tariffs on imports of solar cells and washing machines, which may prove relevant if it turns out to be a portent of future protectionism, particularly with this week’s NAFTA negotiations looming. The Richmond Manufacturing Index will be released today.

USD

EURUSD has seen some intra-day volatility, but no significant moves over the last 24 hours, while the euro has weakened to sterling. This morning’s data will include the ZEW Economic Sentiment index at 10:00 GMT, a survey of institutional investors and analysts. The German index is widely followed, and has recently reflected raised expectations of growth in the eurozone’s largest economy.

UK News - 23/01/2018

New York Times: Stopgap Bill to End Government Shutdown Passes Congress The House passed a short-term spending bill to reopen the government.

Bloomberg: How Irish Border Issue Threatens to Erupt Back Into Brexit Talks While the agreement was designed to prevent a breakdown in talks, serious questions still need to be resolved, according to three people familiar with the EU side of the negotiations. Different interpretations around the precise meaning of May’s commitments are starting to crystallize, according to one European diplomat, and flash points could become clear when the legal text that underpins last month’s accord is drafted early this year.

Politico: Why the shutdown battle is only on pause Congress has until Feb. 8 to strike another deal or the government closes again. And the parties remain far apart on spending and immigration.

News in Brief - 22/01/2018

GBP

Sterling actually traded slightly lower against USD by the end of Friday’s session, with traders taking profits out of positions on GBPUSD after the pair reached a post-referendum high. The rally on Friday had occurred despite a sharp 1.5% contraction in Retail Sales in December, showing the extent to which the UK consumer was shifting purchases into November to chase sales, but was nonetheless a grim portent for 2018. This week’s calendar features labour market data from the ONS including Unemployment and the Average Earnings Index on Wednesday, and the first release of Gross Domestic Product growth in the fourth quarter, on Friday.

EUR

The dollar did come under pressure on Friday, but avoided a total sell-off despite US Government being forced to shut down. The shutdown is due to lawmakers failing to raise a self imposed legislative limit on the nominal value of the federal debt – a quirk of the US that is uncommon among other developed nations. Negotiations between Republicans, who control both houses of legislature and the Presidency, but not a 60 vote majority in the Senate, and Democrats, will continue this week. This week’s calendar is scattered with second tier releases, so attention will be firmly focussed on politics. The first reading of Q4 Gross Domestic Product will be released on Friday.

USD

Although the weekend’s news included a breakthrough in German coalition talks, the euro is trading slightly weaker compared to open against both USD and GBP. A possible cause is the looming European Central Bank meeting on Thursday. The ECB is likely to attempt to talk down any prospects of monetary tightening, if the recent dovish communications offensive from Governing Council Members is anything to go by. The eurogroup of finance ministers will meet today, and the week’s data calendar will begin in earnest with tomorrow’s release of ZEW Economic Sentiment figures for Germany.

UK News - 22/01/2018

Reuters: Gloom shrouds households as UK inflation fears spike LONDON (Reuters) – British households turned gloomier about their finances in January as their expectations about future inflation hit a near four-year high and they relied more on borrowing, according to a survey which underscored the strain on many consumers.

Bloomberg: Merkel Closes in on Fourth Term With Her Familiar Coalition Ally Chancellor Angela Merkel moved forward in her bid to form a fourth-term government after her prospective coalition partner agreed to shelve its misgivings and enter negotiations on a common policy platform for Germany. Merkel, 63, welcomed the outcome of Sunday’s vote by Social Democratic Party delegates in Bonn following what she termed an “intensive and contentious” debate. The chancellor’s Christian Democrats and their Bavarian allies will coordinate on strategy Monday, allowing talks aimed at a resumption of the so-called grand coalition to begin as soon as Tuesday.

Bloomberg: Shutdown Extends Into Third Day as Senate Fails to End Impasse Lawmakers failed to negotiate an end to the government shutdown Sunday despite a bipartisan effort to broker a deal, raising the political stakes as federal agencies begin closing at the start of their normal workweek.

News in Brief - 18/01/2018

GBP

In the overnight market sterling briefly climbed to the highest point against the dollar since June 2016 on the back of dollar weakness, with the markets appearing to be increasingly confident that a wide-ranging trade deal will be eventually agreed for the UK before it officially leaves the European Union. Media reports had over the course of the past week indicated that the Spanish and Dutch finance ministers had agreed to push for a “soft” Brexit, and this morning a senior French finance official, Christian Noyer, stated his belief that Brexit would not be a “catastrophe” for the financial sector in the UK. This morning the RICS House Price Balance showed signs of a strong inflation of housing prices with a reading of 8% for the month December, helped by a less negative tone for London and the surrounding areas. The rest of the data calendar is empty today, which gives markets some time to prepare for the vital Retail Sales figures of Friday.

EUR

After reaching fresh three year highs against the dollar yesterday early morning, the single currency gradually traded down during the day, while simultaneously losing ground against sterling as well. Final Eurozone Consumer Price Index figures came out exactly on expectations yesterday, reminding markets that core inflation pressures in the euro area remain weak. Meanwhile European Central Bank policymaker Ewald Nowotny stated that the euro’s strength is “not helpful”, and reiterated that while the ECB did not have an exchange rate target, they are nonetheless “observing” the exchange rate. This morning German Bundesbank President Jens Weidmann gave a speech, though with little noticeable effects on markets.

USD

The US dollar had a strong morning, an after lunch dip and found renewed powers in the evening which ultimately helped it to close higher against euro and sterling, as well as against other major currencies. The Capacity Utilisation Rate went up to 77.9%, the highest point since February 2015, showing that slack is increasingly disappearing from the US industrial sector. Elsewhere China has reduced its treasury holdings to a four month low, which can be a sign of the diminished appetite of the Chinese for US debt, or a sign to Trump that they can hurt the US when he imposes trade sanctions on the Asian giant. Today at 13:30 GMT we have the Building Permits, Housing Starts, Philly Fed Manufacturing Index and the weekly Unemployment claims, followed at 16:00 GMT by crude oil inventories.

UK News - 18/01/2018

Guardian: Taxpayers to foot £200bn bill for PFI contracts – audit office Taxpayers will be forced to hand over nearly £200bn to contractors under private finance deals for at least 25 years, according to a report by Whitehall’s spending watchdog.

Telegraph: Britain will pay France £44m to help it police border at Calais. Britain will on Thursday agree to pay France £44.5?million to continue to police the border at Channel ports as Theresa May bowed to pressure from Emmanuel Macron.

News in Brief - 17/01/2018

GBP

Matching other major currencies against the dollar, sterling traded down yesterday, rallied briefly, and is now again on the back foot after another reversal overnight. Yesterday’s inflation data from the Office for National Statistics showed the headline Consumer Price Index falling back to 3% annual inflation, in line with expectations from forecasters and the Bank of England. Essential items such as Housing and Housing Services, and Transport were the largest gainers, while discretionary items like alcohol saw smaller increases, suggesting vendors may be wary of increases prices too quickly.

EUR

The euro is also trading slightly down compared to yesterday morning, despite briefly reaching a fresh three year high overnight against the US dollar, after a number of European Central Bank sources may have given market participants cause for hesitance. Yesterday a Reuters report cited anonymous ECB sources saying that the Governing Council would not be revising its forward guidance at next week’s meeting, despite discussion of the topic at its last meeting. ECB Vice President Victor Constancio said in an interview that although the ECB does not target the exchange rate, they would be concerned about sudden movements in the euro that did not match fundamentals in the eurozone. This morning at 10:00 GMT, the most important item of fundamental eurozone data – the Consumer Price Index – will be released.

USD

USD had an early morning wobble that saw it weaken sharply, but the move unwound over the course of the early morning and the greenback is now trading higher compared to yesterday morning against several currencies. Today we get some new insights as to the level of slack left in the economy with the Capacity Utilisation Rate at 14:15 GMT, which most recently reported its highest point in two and a half years. At the same time the monthly Industrial Production of December are published.

UK News - 17/01/2018

Reuters: Back Brexit law or risk chaos, May’s Conservatives tell MPs. LONDON (Reuters) – Prime Minister Theresa May’s Conservative Party urged MPs to back the government’s Brexit legislation at a vote in parliament later on Wednesday, warning opponents that trying to block the plan would bring chaos.

Bloomberg: European Car Sales Rise to 10-Year High. European car sales reached a 10-year high last year as widening economic growth boosted consumer confidence, with SUVs from French manufacturers Peugeot and Renault, Italian competitor Alfa Romeo and Japanese rival Toyota propelling demand.

Guardian: White House doctor says Trump will remain ‘fit for duty’ for years. Physician says president has benefited from ‘a lifetime of abstinence from tobacco and alcohol’ though he could stand to exercise more.

News in Brief - 16/01/2018

GBP

Sterling seems to be taking something of a breather this morning and is trading slightly down against USD and EUR, having reached fresh post-referendum highs against the US dollar yesterday. News reports emerged that Norway was seeking to ensure Britain’s demands for a “bespoke” trade agreement did not force the country to withdraw and renegotiate its own agreements. Drafts of the negotiating guidelines for chief EU negotiator Michel Barnier were also leaked, which appeared to be much stricter than had been anticipated. This morning will see the release of Consumer Price data at 09:30 GMT, with the headline Consumer Price Index expected to see inflation slow to 3.0% from 3.1%.

EUR

The euro faces a fresh bout of political uncertainty this morning, and briefly dropped almost half a percentage point against USD as news emerged that Angela Merkel’s prospective coalition partners, the SPD, were facing internal party opposition to the blueprint coalition agreement that was reached over the weekend. Further developments in the story will be highly relevant for the euro today.

USD

The greenback is finally showing some signs of a rally against the yen, and had a brief burst of strength against the euro as well, having taken yet another pummeling yesterday. Today at 13:30 GMT the Empire State Manufacturing Index, a survey based measure, will be released, while lawmakers are reported to be considering a stopgap measure to raise the self-imposed US debt ceiling this week.

UK News - 16/01/2018

Reuters: EU “still open” to Britain changing mind on Brexit. Donald Tusk, the European Council president, weighed in to new British debate on whether to hold a second referendum on Brexit by saying on Tuesday that Britons would be welcome to stay in the European Union.

Telegraph: Carillion collapse: will pensions still be paid?  Debt laden construction firm Carillion has fallen into liquidation after it failed to reach an agreement with creditors during crisis talks over the weekend.

News in Brief - 15/01/2018

GBP

The British pound reached post-referendum highs against the dollar on Friday, although some terrain had to be given up against the euro. Faith in keeping London as the financial capital of Europe has been a key driver for sterling recently, with Theresa May seeking a bespoke trade deal for the financial sector, despite the European Union’s chief negotiator Michel Barnier repeatedly claiming that such a bespoke deal is not possible. Meanwhile, some EU countries signalled they would prefer London to keep its current function as financial centre. This week on Tuesday the Consumer and Producer Price Index figures are published, with the Retail Sales on Friday. Together these will tell us more about the financial state of UK consumers.

EUR

The euro is now at the strongest level against the dollar since 2014, after a rally that started on Thursday. The catalyst for the euro strength was the release of minutes from the most recent European Central Bank meeting, which indicated that the European economy has strengthened so much that the ECB’s Asset Purchase Program was now likely to end earlier than originally scheduled. A further boost to the euro came from an apparent breakthrough in German coalition talks, though reports this morning indicate that the Social Democrats are facing grassroots opposition to the agreement. Today at 10:00 GMT the Trade Balance is announced.

USD

The USD dollar took a beating at the end of last week, and is now trading at multi-year lows against sterling and euro. Friday nevertheless did bring some data that could become a theme in 2018, namely the Core Consumer Price Index- a key measure of inflation in the US economy- beating expectations. There appears to be a clear strengthening trend in this index, which if maintained should give the Federal Reserve the confidence to potentially hike interest rates a further four times this year. Today at 17:40 GMT Fed speaker Bostic makes his appearance, followed by San Fransisco Fed President John WIlliams at 18:35.

UK News - 15/01/2018

Guardian: Thousands of jobs at risk as Carillion goes into liquidation. The construction firm Carillion, which is involved in a host of major government projects such as HS2 as well as vital public services including school dinners, has gone into compulsory liquidation, putting tens of thousands of jobs at risk.

Telegraph: North and South Korea hold second talks in a week to discuss Winter Olympics. North and South Korea met on Monday to discuss the Winter Olympics for the second time in under a week, in a diplomatic thaw that has raised hopes of an eventual de-escalation of military tensions on the Korean Peninsula.

News in Brief - 12/01/2018

GBP

Sterling took yet another pounding from the euro yesterday, but was able to regain some of its recent losses against the dollar. News flow was sparse, although the Bank of England’s Credit Conditions Survey was released without incident, as lenders continued to tighten unsecured loans. No major sterling data will be released today.

EUR

Yesterday’s meeting minutes from the European Central bank set off a fresh round of euro strength, as they hinted at a potential revision in forward guidance. If such a change was made official over the coming months, it would be the first major departure from the current promise to maintain accommodative policy, which has been in place since the implementation of forward guidance in 2013. The ECB is not about to turn hawkish overnight, but a move from unconditional assurance that policy will remain loose to a more data dependent approach would nonetheless be a significant milestone on the path to normalisation.

USD

The dollar is headed for its fifth weekly loss this morning, after yesterday’s Producer Price Index release put an end to any hopes of a rally. The headline as well as the core index came in at +0.1% in December while forecasters had envisioned prices would increase 0.2%. The main reason for the soft print mentioned in the report were prices for final demand services that were lower than expected. The underlying trend still points to the upside however and certain subcomponents of the report, most notably apparel, point to upward risks for the December Consumer Price Index. December CPI will be published today at 13:30 GMT, accompanied by Retail Sales.

UK News - 12/01/2018

Guardian: Donald Trump calls off visit to London amid fears of mass protests Donald Trump has cancelled a visit to Britain next month to open the new US embassy in London amid fears of mass protests. The American president claimed on Twitter that his reason for calling off the trip was his displeasure at Barack Obama having sold the current embassy for “peanuts” and built a replacement for $1.2bn. “Bad deal,” he wrote.

Reuters: Merkel’s conservatives, SPD agree German coalition blueprint – sources BERLIN (Reuters) – German Chancellor Angela Merkel’s conservatives and the Social Democrats (SPD) agreed after all-night talks on Friday to a blueprint for formal coalition negotiations, party sources said, bolstering prospects for an end to months of political uncertainty. The agreement between party and parliamentary leaders should pave the way for detailed negotiations in coming weeks, lifting the uncertainty that has undermined Germany’s role in international affairs and raised questions about how long Merkel will stay in her job.

Reuters: May tells bankers they are a priority for Brexit amid job warnings LONDON (Reuters) – British Prime Minister Theresa May told bankers from firms such as Goldman Sachs on Thursday they were a priority for her in the Brexit talks, just as new warnings emerged of job losses in the London financial sector unless there is a trade deal.

News in Brief - 11/01/2018

GBP

Sterling weakened further while rumours dominated major FX markets yesterday, as USD and the loonie moved on unsourced reports and anonymous sources. Chancellor Philip Hammond went on a charm offensive in Berlin, telling a business audience that “it takes two to tango”, and appealing for help in creating a “bespoke” trade agreement for Britain that included concessions for the UK financial sector. As if to underline the importance of the issue, recruiters Morgan McKinley said that job vacancies in London’s finance industry fell 52% in December. The Financial Times reported that German officials were less than impressed with the overture. Yesterday’s data included solid Manufacturing Output, and a narrowing in the trade deficit in the three months to November, although Construction Output fell well short of expectations.

EUR

The euro took part in the yesterday’s amusing game of “chase the dollar headline”, at first advancing before retreating, and strengthened further against GBP. The single currency was mostly out of the spotlight yesterday, with a slow data calendar. Today at 10:00 GMT Industrial Production figures will be released, followed at 12:30 GMT by the latest meeting minutes from the European Central Bank.

USD

Shock headlines dominated yesterday’s trading for USD, when in the late morning various news source began reporting that Chinese officials were looking at reducing use of US treasuries as a future staple of their foreign reserves. USD sold off along with US treasuries, with various benchmark bonds such as the 10 year approaching yield highs for the year or longer. Bond yields move inversely to prices. The move unwound throughout the day, helped along by official Chinese sources from the State Administration of Foreign Exchange issuing a statement saying that earlier stories may have been “fake news”. Producer Prices will be released alongside weekly Unemployment Claims today at 13:30 GMT.

UK News - 11/01/2018

Telegraph: Jeremy Hunt urged to boost NHS budget as flu crisis marks ‘watershed moment’ for health service. The NHS is at a “watershed moment” and needs tens of billions in extra cash to deliver the required levels of care, hospital bosses have warned.

Guardian: Brexit: UK could lose half a million jobs with no deal, says Sadiq Khan. A no-deal Brexit could cause the UK to lose half a million jobs and nearly £50bn in investment by 2030, according to an economic forecast commissioned by the mayor of London, Sadiq Khan. The report, which models five possible scenarios for leaving the EU ranging from a near-status quo situation to leaving on World Trade Organisation terms without any transition agreement, warns that the worst option could be a “lost decade” of economic slump.

Reuters: UK lenders plan to tighten grip on consumer loans – BoE. British lenders are planning to further tighten their grip on consumer lending which has already been slowing in recent months, a Bank of England survey showed on Thursday.

News in Brief - 10/01/2018

GBP

Sterling remained on the back foot yesterday, amid slow news flow. Philip Hammond and David Davis appeared as authors of an article in German Newspaper Frankfurter Allgemeine, appealing for a high level of access to EU markets for the finance sector, based on mutually recognised regulatory regimes. Lead Brexit negotiator Michel Barnier warned last month that “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist”. Today at 09:30 GMTIndustrial Production and Construction Output figures will be released alongside the Goods Trade Balance.

EUR

The euro weakened further to USD yesterday, but traded flat against sterling. The official eurozone Unemployment rate was 8,7% in December, the lowest since 2009, although disparities remain large between nations.This morning’s sole major release was French Industrial Production, which contracted 0.5% in November, after a 1.7% spike in October.

USD

The DXY dollar index rose for the third day in a row, gaining against sterling and euro and paring back the losses it made in the last weeks of 2017. The December NIFB Small Business Economic trends print was 104,9, retracing slightly from the 34 year high of the November reading. Today we have the first of this week’s US inflation trio with the Import Prices at 13:30 GMT followed at 15:30 by the Crude Oil Inventories.

UK News - 10/01/2018

Reuters: UK economy set for ‘underwhelming’ 2018, says British Chambers of Commerce. Britain’s economy looks set for an underwhelming 2018, according to a major survey on Wednesday that showed businesses are in a subdued mood ahead of Brexit.

Telegraph: German hostility risks derailing UK plans for bespoke Brexit trade deal. Britain’s plan for a bespoke Brexit trade deal is at risk of being derailed by German opposition even before negotiations on the EU-UK future relationship begin later this year, the Telegraph can reveal.

News in Brief - 09/01/2018

GBP

Sterling largely shrugged off yesterday’s political drama in the UK . It seems a bit early in the year to start burning through the political hot take cliches, but Theresa May’s cabinet reshuffle descended into farce yesterday as various cabinet jobs were rebranded or subject to typos in official communication, ministers refused to move, or outright resigned. Overnight the British Retail Consortium released its Retail Sales Monitor, which tracks official Retail Sales fairly well. The index suggested retail sales growth had cooled slightly in the final three months of the year, with non-food sales falling an average of 1.4% compared to a year earlier.

EUR

The euro was in full retreat yesterday, falling steadily against USD after last week’s buoyant price action on EURUSD. Better than expected Sentix Investor Confidence and surprisingly good Retail Sales figures did nothing to support the single currency. This morning’s data has included strong German Factory Orders, which rebounded 3.4% after several months of declines. The eurozone Unemployment Rate will be released at 10:00 GMT.

USD

The dollar continued to appreciate against a broad swathe of major currencies yesterday, but took a knock against the Japanese yen overnight. Atalanta Federal Reserve president Raphael Bostic gave a fairly generic assessment of his view on rate hikes this year, saying a slow removal of accommodation was appropriate, but that three or four hikes a year may be too fast. The NFIB Small Business Index will be released today at 11:00 GMT, followed at 15:00 by the Job Openings and Labour Turnover Summary, a leading indicator of labour market tightness.

UK News - 09/01/2018

Telegraph: Night of the blunt stiletto. Jeremy Hunt refuses job as business secretary as Justine Greening quits over Cabinet reshuffle Theresa May’s hopes of asserting her authority with a Cabinet revamp fell flat after senior ministers derailed her reshuffle by refusing to budge from their jobs.

Guardian: Toby Young resigns from the Office for Students after backlash. Toby Young has stepped down from the Office for Students less than 24 hours after the universities minister issued a robust defence of his position in the Commons, amid a huge backlash over the free schools champion’s appointment.

News in Brief - 08/01/2018

GBP

Sterling is down this morning as Prime Minister Theresa May is about to embark on a cabinet reshuffle. May has been perceived by many observers of the Conservative Party as lacking the internal support for such a move since last year’s disastrous general election, but this morning’s news reports indicate she is likely to avoid demoting or moving senior figures and potential rivals such as Boris Johnson and Amber Rudd. It’s worth noting implied volatility from three month sterling options fell to its lowest level since December 2014 last week, showing a lack of concern from market participants about future instability. This morning’s main release will be the Halifax House Price Index at 08:30 GMT.

EUR

The euro had a volatile session on Friday, ultimately closing lower against USD despite some sharp swings. Crucial coalition talks between potential partners and Angela Merkel’s CDU begin in earnest this week, following more than three months of indecision after Germany’s indecisive general election. A collapse in this final round of talks would be a substantial disruption for the euro, given Germany’s importance to the regional economy. This morning’s data has included a 0.4% contraction in German Factory Orders, which fell 0.4% in November after rising 0.5% previously. At 09:30 Sentix Investor Confidence will be released, followed at 10:00 by Retail Sales.

USD

After taking a pummeling last week the dollar is trading up this morning. San Francisco Fed President John Williams said in a Reuters interview conducted on Saturday that three rate hikes made sense to him this year, giving the dollar some support after a bruising week. Friday’s Non-Farm Payrolls report showed only 148,000 jobs being added in December, but November’s figures were revised upwards sharply and Average Earnings rose 0.3% as expected, so overall the report was fairly good. Raphael Bostic, who was appointed head of the Atlanta Fed last year and is a voting member of the rate setting Federal Open Markets Committee, will speak today at 17:40 GMT, followed by another appearance from Williams at 18:35.

UK News - 08/01/2018

Reuters: May to change government ministers soon, senior figures reported to be safe. British Prime Minister Theresa May said on Sunday she would announce changes to her ministerial team soon, with media reports saying her foreign, finance, interior and Brexit ministers would keep their jobs in a reshuffle starting on Monday.

Guardian: UK factories optimistic for 2018 despite Brexit concerns, survey finds. Britain’s manufacturers are more upbeat about the state of the global economy than at any time since 2014 and believe demand from overseas will sustain their businesses through another year of Brexit uncertainty, a survey has shown.

News in Brief - 05/01/2018

GBP

The British pound had a quiet day yesterday in which gains were made on cable and other G10 currencies, but losses were endured against euro. December Car Sales showed their biggest drop since 2009, a sign that consumers are postponing big ticket purchases. The December Services Purchasing Manager Index had a healthy reading of 54.2, though the details were mixed. The new order growth slowed down to a 16-month low, while the business activity in the sector saw a sharp rise in December. Sterling is heading for an early weekend, as today’s data calendar remains empty.

EUR

Euro surged yesterday, but halted its advance as sudden as it came, only to pace nervously just below the three year highs on EURUSD which were put on the boards last September. The December Service PMIs were marginally above expectations at 56.6 and contained a handful of records on various subparts of the report. It indicated that risks for inflation in the Eurozone appear to be tilted to the upside for the coming months. November German Retail Sales this morning were beyond solid and jumped up 2.3% month-on-month, making us forget the drop of 0.9% that came out of the blue last October. Today at 10:00 GMT we may see some first glimpses of strengthening inflation as the Eurozone Consumer Price Index Flash Estimate is published.

USD

The greenback was facing headwinds across the board yesterday and had to give up some ground to sterling and euro, although it is back on the offensive again this morning. The weakness of the dollar was inconsistent with the data that came out, which was actually quite good. The ADP estimate of Non-Farm Payroll growth was well above expectations at +250K and the Final Services PMI showed a score of 53.7, again better than expected. Elsewhere, North Korea accepted South Korea’s invitation for diplomatic talks next week for the first time in two years, which should help ease tensions in the region. Today at 13:30 GMT the Non-Farm Employment Changes are published together with Unemployment figures and Average Hourly Earnings, followed at 15:00 by the ISM Non-Manufacturing PMI.

News in Brief - 04/01/2018

GBP

Sterling reached a fresh high for the year against the US dollar in the morning, but saw it’s fortunes reverse as the greenback rallied in the afternoon. Yesterday’s main release was the Construction Purchasing Managers’ Index, which fell short of expectations and showed falling commercial activity offset by decent residential building. Today at 09:30 GMT the equivalent Services PMI will be released, representing the largest sector of the UK economy.

EUR

The single currency retraced a bit yesterday after it hit the highest point since September on EURUSD earlier in the week. Positive news from the German political arena arrived as the three main political parties currently negotiating to form a coalition government- the CDU, CSU and SPD- produced a joint statement stating that “trust has grown, we’re starting negotiations optimistically” and spelling out that “conditions for tight and effective exploratory talks” to be held at the 7th of January are present. Throughout the morning several national readings of Services PMIs will be released, culminating into a figure for the entire Eurozone at 9:00 GMT.

USD

The US dollar found a modicum of solace yesterday and made inroads against a number of the G10 currencies, among others the euro and sterling, after a weak start to the year. The ISM Manufacturing Purchasing Managers Index was more than solid with a reading of 59.7 and held the promise of more good times to come with the leading component new orders being standing out in a positive fashion. In the evening the latest Meeting Minutes of the Federal Open Market Committee showed the Federal Reserve is unconcerned about the flattening yield curve, and does stand ready to tighten faster if inflation suddenly strengthens. Today at 13:15 GMT the ADP estimate of Non-Farm Payroll growth in December is expected to make it to our displays, followed at 13:30 by weekly Unemployment Claims.

UK News - 04/01/2018

Reuters: Tony Blair warns British voters – time is running out to stop Brexit folly. Former British Prime Minister Tony Blair on Thursday warned voters that time was running out to reverse Brexit, a folly he said would torpedo Britain’s remaining clout and be regretted for generations to come.

Guardian: Fears minimum wage rises will put more jobs at risk of automation. Above-inflation increases in Britain’s minimum wage are putting a growing number of workers at risk of being replaced by machines, one of the country’s leading thinktanks has warned.

Daily Mail: Hundreds of thousands of commuters face train chaos next week in three days of strikes just days after massive fare hikes were announced. Hundreds of thousands of commuters are facing travel chaos in three days of rail strikes next week – just days after fare hikes were announced. But talks have been held in a bid to avert some of the strikes planned on the railways next week.

News in Brief - 03/01/2018

GBP

Sterling posted its highest level against the US dollar since September, and showed most other major currencies its heels yesterday as well. The strength came despite Manufacturing Purchasing Manager Index data disappointing with a score of 56.3, versus 58.0 expected, but this was not enough to restrain the British pound. Today the PMI of the construction sector is expected at 9:30 GMT.

EUR

Euro continued the strength we saw at year end, reaching the highest point on the EURUSD cross since September last year, and gaining against the rest of its G10 peers as well. Manufacturing data from the Eurozone yesterday was strong, and news out of the high towers of the European Central Bank added to the bullish sentiment that buzzed around the single currency yesterday, with ECB Governing Council member Benoit Coeure suggesting that the Asset Purchasing Program may not be extended again. Today we have the German Unemployment change at 8:55 GMT.

USD

The greenback had a bad start of the year and slumped 0.4% against all the other G10 currencies, though this morning a jump in treasury yields seems to have put it on a more solid footing. Markets were unmoved by chatter from President Trump, who engaged in a classic “who’s got the biggest” contest by tweeting that his nuclear button is both “bigger” and “works”, in response to reports that the North Korean leader Kim Jong Un said that he has a nuclear button on his desk. Today at 15:00 GMT we have the ISM Manufacturing PMI and at 19:00 the Federal Open Market Comittee meeting Minutes are released.

UK News - 03/01/2018

Reuters: UK building firms see growth slow in December – PMI. Growth in Britain’s construction sector slowed last month for the first time since September, as weaker growth in house-building combined with a fall in commercial building and stagnating infrastructure work, a survey showed on Wednesday.

Telegraph: Nicola Sturgeon urged to drop tax hike after 15 per cent rise for Scots’ energy and insurance bills. Nicola Sturgeon has been urged to drop plans for an income tax hike in April after it emerged Scottish households were hit with a 15 per cent increase in their energy and insurance bills last year.

News in Brief - 02/01/2018

GBP

Sterling has come off reasonably well from the volatility seen overnight, benefitting against the US dollar and seeing only small losses since midnight against the euro. The year’s first significant data release will be today’s Manufacturing Purchasing Managers’ Index, at 09:30 GMT. The release will be accompanied by mortgage Equity Withdrawal figures from the Bank of England. Later this week equivalent PMIs for the Construction and Services sectors will be released on Wednesday and Thursday respectively.

EUR

The euro has had a cracking start to 2018, advancing to its highest level against USD since September 2017. There’s been little in the way of data or headlines to drive the move, but European sovereign yields have increased sharply in recent weeks, reflecting increasing expectations of growth, inflation, and policy normalisation. As with sterling, Manufacturing Purchasing Managers’ Indices were released this morning for eurozone economies.

USD

USD is in a tailspin this morning, following a bruising series of losses last week that has seen the weighted greenback index DXY fall some 1.5% since Christmas. Today’s data will include the Manufacturing Purchasing Managers Index from Markit, at 14:45 GMT. Later in the week, the Non-Farm Payrolls report will be out on Friday.

UK News - 02/01/2018

Reuters: Britain wants financial services included in EU trade deal – Davis. LONDON (Reuters) – Britain wants to include financial services in a trade deal with the European Union which covers a full sweep of economic areas, Brexit minister David Davis said on Tuesday.

Guardian: Rail bosses seek to defend UK train fare rises amid protests at stations. Rail bosses have defended the biggest annual increase in train fares in five years in the face of dozens of demonstrations against the rise by commuter groups and unions at the UK’s busiest stations.

News in Brief - 22/12/2017

GBP

Sterling weakened yesterday and overnight, as scandal claimed a senior ally of Prime Minister Theresa May and weak Consumer Confidence figures were released overnight. In testimony to Parliament’s Treasury Select Committee, Bank of England Governor Mark Carney made overtures to the European financial sector, saying that it would be allowed to continue to operate on a similar basis to current “EU Passport” rights after Brexit, despite the prospect of the EU tightening regulation of UK banks operating on the continent. Overnight the GfK Consumer Confidence Index dropped slightly to -13, compared to -7 in January of this year. Government borrowing figures will be released this morning at 09:30 GMT.

EUR

The euro saw a burst of strength yesterday afternoon, breaking higher against the US dollar, and has managed to hold on to a decent chunk of its gains overnight. Bundesbank Head and European Central Bank policy maker Jens Weidmann was true to form in a speech yesterday and called for an end date for the ECB’s bond buying programme, saying that wage growth would add to upwards price pressure in the future. Today at 15:00 GMT eurozone Consumer Confidence figures will be released.

USD

USD performance was a mixed bag yesterday, with the greenback weakening against the euro but managing to hold its own elsewhere. Tax reform legislation cleared the final legislative hurdles with a final vote in the House of Representatives, meaning that the bill will become law once signed by President Trump, who said in a statement that he “promised the American people a big, beautiful tax cut for Christmas…With final passage of this legislation, that is exactly what they are getting.”

UK News - 22/12/2017

Reuters: May forces her deputy to resign over pornography scandal. LONDON (Reuters) – Prime Minister Theresa May forced her most senior minister, Damian Green, to resign after an internal investigation found he had made misleading comments about pornography on computers in his parliamentary office.

Guardian: Bank of England to allow EU banks to keep UK operations unchanged after Brexit. The Bank of England plans to allow European banks to maintain their UK operations under current rules following Brexit, in a direct challenge to European Union regulators to adopt the same policy towards UK-based banks.

Telegraph: Four in five GPs ordering needless drugs and tests for fear of being sued, amid soaring small claims by patients. Four in five GPs say they are ordering needless tests and drugs for patients for fear of otherwise being sued. It comes amid soaring numbers of successful small claims against the NHS, which have risen by more than a quarter in one year.

News in Brief - 21/12/2017

GBP

Sterling weakened yesterday and overnight, as scandal claimed a senior ally of Prime Minister Theresa May and weak Consumer Confidence figures were released overnight. In testimony to Parliament’s Treasury Select Committee, Bank of England Governor Mark Carney made overtures to the European financial sector, saying that it would be allowed to continue to operate on a similar basis to current “EU Passport” rights after Brexit, despite the prospect of the EU tightening regulation of UK banks operating on the continent. Overnight the GfK Consumer Confidence Index dropped slightly to -13, compared to -7 in January of this year. Government borrowing figures will be released this morning at 09:30 GMT.

EUR

The euro saw a burst of strength yesterday afternoon, breaking higher against the US dollar, and has managed to hold on to a decent chunk of its gains overnight. Bundesbank Head and European Central Bank policy maker Jens Weidmann was true to form in a speech yesterday and called for an end date for the ECB’s bond buying programme, saying that wage growth would add to upwards price pressure in the future. Today at 15:00 GMT eurozone Consumer Confidence figures will be released.

USD

USD performance was a mixed bag yesterday, with the greenback weakening against the euro but managing to hold its own elsewhere. Tax reform legislation cleared the final legislative hurdles with a final vote in the House of Representatives, meaning that the bill will become law once signed by President Trump, who said in a statement that he “promised the American people a big, beautiful tax cut for Christmas…With final passage of this legislation, that is exactly what they are getting.”

UK News - 21/12/2017

Reuters: May forces her deputy to resign over pornography scandal. LONDON (Reuters) – Prime Minister Theresa May forced her most senior minister, Damian Green, to resign after an internal investigation found he had made misleading comments about pornography on computers in his parliamentary office.

Guardian: Bank of England to allow EU banks to keep UK operations unchanged after Brexit. The Bank of England plans to allow European banks to maintain their UK operations under current rules following Brexit, in a direct challenge to European Union regulators to adopt the same policy towards UK-based banks.

Telegraph: Four in five GPs ordering needless drugs and tests for fear of being sued, amid soaring small claims by patients. Four in five GPs say they are ordering needless tests and drugs for patients for fear of otherwise being sued. It comes amid soaring numbers of successful small claims against the NHS, which have risen by more than a quarter in one year.

News in Brief - 20/12/2017

GBP

Sterling closed flat against USD, and weakened slightly to the euro, which put in a strong performance yesterday. Data flow was practically nonexistent, and the day’s political headlines had little impact. The data calendar begins to pick up again today, with the release of the Confederation of British Industry’s Realised Sales index at 11:00 BST. Bank of England Governor Mark Carney will testify to lawmakers on the Financial Policy Committee’s latest Financial Stability report at 13:15 BST.

EUR

The euro saw broad strength yesterday, despite a lack of headlines or significant data. The only release of note, the German IFO Business Climate survey, actually fell slightly short of expectations, with the surveyed institutional investors and analysts reporting a marginally lower level of optimism. This morning’s data has included a soft print for the German Producer Price Index, which rose 0.1% in November, and at 09:00 GMT the eurozone Current Account will be released. German Bundesbank head and chief European Central Bank hawk Jens Weidmann will speak at 13:00 GMT.

USD

The rapid progress made towards passing tax reform legislation has been scant comfort to the US dollar over the last 24 hours, and the greenback has come under pressure. The House and Senate passed the latest bill yesterday, meaning the final House vote and ultimate signing is now all but a formality. After the vote, President Donald Trump tweeted “The Unitede [sic] States Senate just passed the biggest in history Tax Cut and Reform Bill”, although as the Financial Times pointed out, this description is disputed by many tax and fiscal policy experts. Housing Market data released yesterday showed better than expected activity in the sector, while the US Current Account deficit was smaller than expected in the third quarter. Today at 15:00 GMT Existing Home Sales data will be released.

UK News - 20/12/2017

Reuters: Too late, Theresa – Brexit offer to EU citizens leaves many cold. LONDON (Reuters) – Back from Brussels with a hard-fought Brexit deal, Prime Minister Theresa May wrote an open letter to the three million citizens of other European Union states living in Britain.

Telegraph: Half of maternity units close their doors to women in labour amid midwife shortage . Half of maternity units had to close their doors to women in labour last year due to shortages of staff, leading midwives have warned.

Daily Mail: Trump will visit the UK but NOT meet the Queen. Donald Trump has told British prime minister Theresa May he will visit Britain in the new year – but will not meet the Queen, it emerged Tuesday. The president and the prime minister instead discussed a ‘working visit’ to London, which is pencilled in for late February.

News in Brief - 19/12/2017

GBP

The major currency pairs were quiet yesterday, which allowed sterling to regain some ground against the US dollar. Politics remained the main focus of news flow, as posturing from both sides of the Brexit negotiations kicked into overdrive. Theresa May’s Cabinet met to discuss the nature of the deal Britain will be seeking, with Brexit Secretary David Davis reported to be preparing to warn the European Union that it could not cherry pick sectoral deals as a part of trade talks. Equally, EU chief negotiator Michel Barnier made similar remarks in reference to the City of London and financial services, clarifying that the “passporting” rights currently enjoyed by UK financial institutions would be lost. For now, the objective of UK negotiating strategy seems to be to attempt to achieve a “cake and eat it” outcome, whereby Britain engages in regulatory divergence, while retaining high levels of access to European markets.

EUR

The euro traded higher against USD yesterday, as the greenback softened generally. European inflation data was bang on expectation in its final reading for November, with the headline Consumer Price Index rising 1.5% and the Core Index, which excludes fuel, rising 0.9%. The core index in particular is rising at more or less the same rate as the last three years. The data calendar today is rather sparse, with the main release being the German IFO Business Climate survey at 09:00 GMT.

USD

USD weakened yesterday, as Friday’s momentum and excitement over tax reform progress proved to be short lived. The House of Representatives is expected to vote on tax reform today, sending the bill to the Senate and then ultimately President Trump for passage into law as earlier as this year, barring any hiccups. Today at 13:30 GMT housing market data will be released include Building Permits and Housing Starts, alongside the Current Account. The Federal Reserve’s Neel Kashkari will at an event in Minnesota, although the timing is unconfirmed.

UK News - 19/12/2017

Reuters: Eurosceptics baulk as May pitches status quo Brexit transition. LONDON (Reuters) – British Prime Minister Theresa May told parliament her plan on Monday for a Brexit transition period with broadly the same access to European Union markets but was met with scepticism from pro-Brexit lawmakers fearful of a watered-down EU exit.

Guardian: UK cannot have a special deal for the City, says EU’s Brexit negotiator. Britain cannot have a special deal for the City of London, the European Union’s chief Brexit negotiator has told the Guardian, dealing a blow to Theresa May’s hopes of securing a bespoke trade agreement with the bloc.

News in Brief - 18/12/2017

GBP

Sterling weakened substantially on Friday, as the boost it enjoyed from the formal announcement of a deal to move Brexit talks on to phase 2 proved to be a sugar rush. This morning’s political headlines are a familiar mix of Tory infighting, posturing from all sides, and dissent from Foreign Secretary Boris Johnson, though none have had a noticeable effect on sterling. This morning’s main release will be Industrial Order Expectations from the Confederation of British Industry, at 11:00 GMT.

EUR

After a brief pause on Friday morning, EURUSD resumed its downwards trend as the greenback continued to pick up momentum. This week’s data calendar will be slow for the single currency, although the final revision for November Consumer Price Index inflation in November will be released this morning at 10:00 GMT. The German IFO Business Climate survey will be released tomorrow.

USD

Dollar strength is emerging as a theme of global markets this morning, as the greenback edged higher overnight after strengthening on Friday, amid optimism that tax reform legislation may finally be passed this week. The legislation as currently proposed would probably only add a very modest uplift to economic growth, but it represents the first major legislative achievement for the Trump administration and Republican Party. Today at 15:00 GMT the NAHB Housing Market Index will be released as the day’s sole major economic data. Tuesday will see more housing market data including Building Permits, and Durable Goods Orders will be released alongside the PCE Price Index on Friday.

UK News - 18/12/2017

Reuters: May to pitch status quo Brexit transition to parliament. LONDON (Reuters) – Prime Minister Theresa May will pitch her plan for a Brexit transition period with unchanged access to European Union markets when she briefs MPs on Monday about her latest negotiating trip to Brussels.

Express: Johnson DEMANDS Britain make a clean break from Brussels as Cabinet truce crumbles. The Foreign Secretary, an ardent Brexiteer, has long raised his head above the parapets of parliament to make clear his vision for the nation’s future.

News in Brief - 15/12/2017

GBP

Yesterday’s Bank of England rate announcement and meeting minutes turned out to be something of a non-event for sterling. The Monetary Policy Committee kept rates unchanged in a unanimous vote, and kept its outlook for the economy, inflation, and rates, more or less unchanged. The fall in net employment reported this week did come up for discussion, but was written off as a quirk of the data as opposed to a concerning development – a judgement that is unlikely to be as easily made if the labour market cools further. Yesterday’s main data release for sterling was monthly Retail Sales, which handily beat expectations to grow 1.1% in November. This morning’s biggest news has been the formal confirmation of last week’s deal to move Brexit talks on from their first phase, which has had a muted impact on sterling.

EUR

The “Draghi effect” may no longer be enough to weaken – or strengthen – the euro by several percentage points in seconds, but the euro did nonetheless weaken during yesterday’s European Central Bank press conference. The core message of the presser was that the ECB had grown more bullish on European growth, but that the eurozone was at an earlier stage in its business cycle than, for example, the United States. Inflation had yet to show signs of a sustainable acceleration, and so the ECB’s easing programme should continue unabated. Draghi batted away questions about the future of QE beyond its current end in September 2018, and the euro sold off.

USD

Despite taking advantage of the euro’s weakness yesterday, USD is looking at its first weekly loss this month, after its sell off in the wake of Wednesday’s Federal Open Market Committee rate hike. US Retail Sales surged by 0.8% in November, while weekly Unemployment Claims were astonishingly low, approaching numbers not seen since the 1970s, when the labour market was far smaller. Purchasing Managers Indices for the Services and Manufacturing sectors were released by Markit, with Manufacturing outperforming and Services falling, while both remaining indicative of overall growth reported by the survey respondents. Today at 13:30 GMT the Empire State Manufacturing Index will be released, followed at 14:15 by Capacity Utilisation and Industrial production.

UK News - 15/12/2017

Reuters: May wins applause from EU leaders for Brexit efforts. BRUSSELS (Reuters) – European leaders applauded British Prime Minister Theresa May for her work so far on Brexit, assuring her at a summit in Brussels that sufficient progress has been made to allow Britain to move on to the next stage of leaving the union.

Guardian: Families with stable jobs at risk of homelessness in Britain, report finds. Homelessness is now a serious risk for working families with stable jobs who cannot find somewhere affordable to live after being evicted by private-sector landlords seeking higher rents, the local government ombudsman has warned.

News in Brief - 14/12/2017

GBP

Sterling had a volatile session yesterday, ultimately closing lower after several intraday swings, one of which included a brief patch of strength spurred on by the morning’s inflation data. November’s inflation data has showed prices increasing in the UK economy by a sliver more than expected. Headline CPI was 3.1% year on year, compared to 3% previously and a median forecast of 3%. The increase was broad based among the various categories. The figures did not come as a surprise, as ultimately the Brexit shock is still working its way through consumer and business behavior. What’s important is that inflation is not expected to accelerate much further from where it is today; if it does continue rising in to 2018, then the BoE will ultimately be forced to react. Yesterday’s Brexit related news included EU Parliament negotiator Guy Verhofstadt publicly admonishing David Davis for suggesting the deal agreed last week was not binding, which triggered a short lived sterling sell off. Today at 09:30 equally important labour market data including the Unemployment Rate will be released.

EUR

The euro reached a fresh low against USD yesterday, and after a brief rally yesterday evening is back on the defensive. Weak survey data was released in the morning, with the ZEW Economic Sentiment missing expectations for both the eurozone and Germany. Today’s calendar is marginally more eventful, having already seen German monthly Consumer Prices and Wholesale prices expand at a rapid rate in November, with wholesale prices expanding 0.5%. Italian Industrial Production will be released at 9:00 GMT, followed by eurozone Unemployment and Industrial Production at 10:00.

USD

The US dollar saw minor gains versus sterling and euro, and mixed results against other G10 currencies. The Democrat Doug Jones triumphed in the traditionally deep red state of Alabama, putting a Democrat on the chair of Senator in this state for the first time in 25 years. This brings the majority that Trump has in the Senate back to 51 against 49, which may handicap his abilities to get any future infrastructure deal past the Senate. The Core Producer Price Index surprised on the upside and showed the fastest month on month increase in prices in 6 years. This afternoon we have the US Consumer Price Index at 13:30 GMT followed in the evening by a rate announcement from the Federal Open Market Committee and Janet Yellen’s swan song in her last FOMC press conference as Fed chair. Yellen’s presser will be accompanied by updated member projections for growth, inflation, and interest rates.

UK News - 14/12/2017

Reuters: Exclusive – After Grenfell fire, same builders rehired to replace dangerous cladding, Reuters finds. LONDON (Reuters) – Some building companies that installed dangerous cladding on social housing blocks across Britain are now winning new contracts following the Grenfell Tower blaze to remove their original work and install panels that can pass safety tests, a Reuters review shows.

Telegraph: New current account rules will not help consumers save money, critics say. New rules set out by the City watchdog aimed at helping customers compare bank accounts have been condemned by consumer groups for not going far enough and failing to help people save money.

News in Brief - 13/12/2017

GBP

Sterling had a volatile session yesterday, ultimately closing lower after several intraday swings, one of which included a brief patch of strength spurred on by the morning’s inflation data. November’s inflation data has showed prices increasing in the UK economy by a sliver more than expected. Headline CPI was 3.1% year on year, compared to 3% previously and a median forecast of 3%. The increase was broad based among the various categories. The figures did not come as a surprise, as ultimately the Brexit shock is still working its way through consumer and business behavior. What’s important is that inflation is not expected to accelerate much further from where it is today; if it does continue rising in to 2018, then the BoE will ultimately be forced to react. Yesterday’s Brexit related news included EU Parliament negotiator Guy Verhofstadt publicly admonishing David Davis for suggesting the deal agreed last week was not binding, which triggered a short lived sterling sell off. Today at 09:30 equally important labour market data including the Unemployment Rate will be released.

EUR

The euro reached a fresh low against USD yesterday, and after a brief rally yesterday evening is back on the defensive. Weak survey data was released in the morning, with the ZEW Economic Sentiment missing expectations for both the eurozone and Germany. Today’s calendar is marginally more eventful, having already seen German monthly Consumer Prices and Wholesale prices expand at a rapid rate in November, with wholesale prices expanding 0.5%. Italian Industrial Production will be released at 9:00 GMT, followed by eurozone Unemployment and Industrial Production at 10:00.

USD

The US dollar saw minor gains versus sterling and euro, and mixed results against other G10 currencies. The Democrat Doug Jones triumphed in the traditionally deep red state of Alabama, putting a Democrat on the chair of Senator in this state for the first time in 25 years. This brings the majority that Trump has in the Senate back to 51 against 49, which may handicap his abilities to get any future infrastructure deal past the Senate. The Core Producer Price Index surprised on the upside and showed the fastest month on month increase in prices in 6 years. This afternoon we have the US Consumer Price Index at 13:30 GMT followed in the evening by a rate announcement from the Federal Open Market Committee and Janet Yellen’s swan song in her last FOMC press conference as Fed chair. Yellen’s presser will be accompanied by updated member projections for growth, inflation, and interest rates.

UK News - 13/12/2017

Reuters: Exclusive – After Grenfell fire, same builders rehired to replace dangerous cladding, Reuters finds. LONDON (Reuters) – Some building companies that installed dangerous cladding on social housing blocks across Britain are now winning new contracts following the Grenfell Tower blaze to remove their original work and install panels that can pass safety tests, a Reuters review shows.

Telegraph: New current account rules will not help consumers save money, critics say. New rules set out by the City watchdog aimed at helping customers compare bank accounts have been condemned by consumer groups for not going far enough and failing to help people save money.

News in Brief - 12/12/2017

GBP

Sterling weakened further yesterday, approaching last week’s lows as various political headlines continued to circulate after Friday’s breakthrough in Brexit negotiations. It is worth noting International Trade Secretary Liam Fox explicitly said yesterday that Theresa May’s Government is seeking a trading relationship with the EU that is “virtually identical” to the current arrangements, further reinforcing the idea that Theresa May is not seeking a hard Brexit. Today’s main data release is inflation from the Office for National Statistics, at 09:30 GMT.

EUR

The euro was once again out of the spotlight yesterday, with a minor rally in its value already having been completely reversed over the course of this morning. This morning’s main data release will be the widely followed ZEW Economic Sentiment Survey, which will be released at 10:00 GMT for both the eurozone as a whole and the crucial German economy. European Central Bank President Mario Draghi will speak at 19:00.

USD

The dollar’s momentum slowed yesterday, after a five day winning streak last week for the weighted DXY index. The Job Openings and Labour Turnover Summary showed open positions falling slightly, after months of near record openings. Today’s data calendar is more eventful, with the NFIB Small Business Index out at 1100 GMT, followed by the Producer Pride Index at 13:30. However, the markets main focus will be tomorrow’s Federal Reserve meeting. The Fed are widely expected to hike interest rates once more, so the main source of interest will be whether there is any change to their current forecast for a further three hikes next year.

UK News - 12/12/2017

Reuters: UK inflation hits nearly six-year high of 3.1 percent, oil puts more pressure on factories. LONDON, Dec 12 (Reuters) – British inflation unexpectedly rose to its highest level in nearly six years in November, tightening the post-Brexit vote squeeze on households whose spending is the main driver of the country’s economy.

Guardian: Surveillance firms spied on campaign groups for big companies, leak shows. British Airways, the Royal Bank of Scotland and Porsche are among five large companies that have been identified as having paid corporate intelligence firms to monitor political groups that challenged their businesses, leaked documents reveal.

News in Brief - 11/12/2017

GBP

G10 FX has had a slow start to the week, and sterling is no exception, trading close to open against most of its major partners after the strength from Friday’s dramatic Brexit developments proved fleeting. This will be a potentially decisive week for sterling, with top tier data releases in the form of inflation on Tuesday, labour market data on Wednesday, and the Bank of England’s latest rate announcement on Thursday. In the meantime Friday’s breakthrough in Brexit negotiations is likely to remain a subject of controversy, with Theresa May reportedly due to tell Ireland that Friday’s announcements are not binding.

EUR

The euro was quiet last week, coming under mild pressure against GBP and USD, and opening well this morning against NOK on weak Norwegian inflation data. A few tidbits of data will be released this week, including the widely followed ZEW survey for the German economy tomorrow morning, and eurozone unemployment on Wednesday. Thursday will see the European Central Bank announce its latest rate decision, including a press conference given by President Mario Draghi.

USD

USD continued to gain broad momentum last week, with the US sovereign yield curve continuing to flatten as market participants prepared for more rate increases from the Federal Reserve, but remained sceptical about the economy’s long term growth trajectory. This week’s Federal Open Market Committee rate announcement on Wednesday is the last major event on the year’s calendar, and will feature updated forecasts for the economy and interest rates, as well as a press conference from outgoing Fed Chair Janet Yellen. Given that job creation remains steady, wages are rising, and the economy is growing a hike at this week’s meeting is all but assured, and USD effects will focus on the messaging surrounding the decision. Today at 15:00 GMT the Job Openings and Labour Turnover Summary will be released.

UK News - 11/12/2017

Reuters: Labour Party looks to move some BoE functions away from London. Britain’s Labour Party is considering moving some of Bank of England’s functions to Birmingham, from its current home in Threadneedle Street in the City of London, according to an interim report on the British financial system released on Sunday.

Telegraph: Lord Kerslake quits as NHS trust chairman over ‘unrealistic’ funding cuts A fundamental review of the NHS is needed to address a financial crisis, Lord Kerslake said, after quitting as the boss of a major hospital trust in protest at funding problems.

Daily Mail: Third of GPs plan to close surgeries to new patients: Doctors say drastic action is needed. One three family doctors plan to close their surgeries to new patients, a survey found. They claim that without drastic action they will be unable to give safe care to those already on their books. One in ten GPs said they had already closed surgery lists to new patients temporarily within the past 12 months.

News in Brief - 06/12/2017

GBP

Sterling has continued to sell off over the past twenty four hours, being weighed down by continued Brexit uncertainty. Theresa May’s Government scrambled to recover after Monday’s scuppering of a potential deal on the Irish border by the Northern Irish Democratic Unionist Party, with Brexit Minister David Davis clarifying in Parliament that the phrase “regulatory alignment”, which was one of the main objections of the DUP, was meant to apply to the whole United Kingdom, not just Northern Ireland. Negotiations and maneuvering will continue today, while the Telegraph is reporting this morning that Theresa May is once again facing internal dissent from Cabinet members including Boris Johnson and Michael Gove. Yesterday’s Services Purchasing Managers Index release for sterling went largely unnoticed, but showed a dip in the confidence reported by survey respondents.

EUR

The euro came under pressure yesterday, including against USD where it reached its lowest level in more than a month. Aside from the morning’s Purchasing Managers’ Index released, which showed a solid level of expansion in the services sector, monthly Retail Sales fell well short of expectations, contracting 1.1% in September after a 0.8% jump in August. This morning’s data has included a good print for German Factory Orders, which rose 0.5% in October, after rising 1.2% in September. Retail PMI at 09:10 GMT is the morning’s other major release.

USD

The US dollar had a solid day yesterday, making inroads against sterling and euro, while the weighted dollar index DXY was up as well.The US Trade Balance deteriorated significantly in October, with exports down 1.8% and imports rising 1.3%. This deterioration was likely enough to negatively impact US growth in the fourth quarter. The November ISM Non-Manufacturing Purchasing Managers’ Index fell compared to last month, though there’s little cause for concern since the score of 57.4 is still in the vicinity of last month’s reading, which was the highest in 12 years. Today at 13:15 the ADP Non-Farm Employment Change will be released and at 15:30 Crude Oil Inventories will be published.

UK News - 06/12/2017

Telegraph: Boris Johnson and Michael Gove lead Cabinet revolt against Theresa May over fears she is forcing a soft Brexit. Theresa May is facing a Cabinet revolt after Brexiteers led by Boris Johnson and Michael Gove expressed “genuine fear” the Prime Minister is trying to force through a soft Brexit.

Guardian: MI5 and police ‘thwart plot to assassinate Theresa May’. Security officials believe they have thwarted an alleged plot to assassinate Theresa May by terrorists who would first bomb their way into Downing Street and then kill the prime minister, it has emerged.

News in Brief - 05/12/2017

GBP

Sterling has once again had an eventful 24 hours, as Brexit negotiations hit yet another snag. The pound rallied powerfully throughout the first half of the day, with various reports indicating that UK Prime Minister Theresa May’s lunch with European Commission President Jean-Claude Juncker would result in the announcement of a provisional deal being struck. However, as the lunch dragged on in to its third hour, sterling’s progress stalled as markets awaited formal confirmation. Unfortunately, at the conclusion of the dinner it was announced that, despite progress, no deal had yet been struck. It later transpired that Theresa May’s partners in Government, the DUP in Northern Ireland, flatly rejected the proposal of “continued regulatory alignment” between Northern Ireland and the European Union, with DUP leader Arlene Foster stating that she was unwilling to tolerate “regulatory divergence” with the rest of the United Kingdom. For today, at 09:30 GMT the Services Purchasing Managers’ Index will be released.

EUR

The euro had another uneventful day, only momentarily down against USD before closing more or less flat. The Sentix Ivnestor Confidence Index for the eurozone fell slightly to 31.0, nonetheless a high level relative to the last couple of years. Producer Prices rose 0.4% as expected in October. Services Purchasing Managers Indices will be released throughout the morning, followed by European Retail Sales and a Gross Domestic Product revision at 10:00 GMT.

USD

EURUSD was relatively quiet yesterday, and the weighted USD index DXY was also basically flat on the day, as no new material information about the tax reform bill came to light. The only data release of note was monthly Factory Orders, which contracted 0.1% in October. Today at 13:30 GMT Trade Balance data for October will be released, followed by Services Purchasing Managers Indices from Markit and ISM at 14:45 and 15:00 respectively.

UK News - 05/12/2017

Reuters: After Brexit deal crumbles, May to speak to Northern Irish party. Prime Minister Theresa May and other British officials will speak to Northern Ireland’s Democratic Unionist Party (DUP) on Tuesday after a tentative deal on Brexit with the European Union over the border with Ireland was dashed at the last minute.

Guardian: The Hague says claims of war crimes by UK troops have ‘reasonable basis’. The chief prosecutor at the international criminal court in The Hague, Fatou Bensouda, has declared there is a “reasonable basis” to believe that UK soldiers committed war crimes against detainees during the Iraq conflict.

News in Brief - 04/12/2017

GBP

Sterling pared its gains from earlier in the week on Friday, and has not shown any signs of regaining momentum this morning. Depending on which headline you’re reading, Theresa May is either on the verge of striking a deal on the Irish border issue, or has failed altogether. The truth appears to be somewhere in the middle, with May heading to Brussels for lunch with Jean-Claude Juncker to present an updated offer that includes an updated and enlarged divorce settlement, with Ireland and the future role of the European Court of Justice remaining two potential sticking points. The day’s major data release will be the Construction Purchasing Managers’ Index at 09:30 GMT. The equivalent Services PMI will be released tomorrow, and later in the week Industrial Output data will be released on Friday.

EUR

The euro has been out of the spotlight somewhat, with political and economic developments aplenty elsewhere in the G10, trading up against USD and GBP on Friday. Monthly Spanish jobs data has missed expectations this morning, while still showing a net increase in employment. Later in the morning at 09:30 GMT Sentix Investor Confidence will be released, followed at 10:00 by the Producer Price Index.

USD

The dollar had a dramatic day on Friday, weakening after US media erroneously reported that Donald Trump’s former top aide, Michael Flynn, was prepared to testify against the President regarding the investigation in to Russian involvement in the Presidential elections. The report came from US news network ABC’s chief investigative reporter, Brian Ross, who was suspended after it was revealed that Flynn’s testimony did not, in fact, contradict the President, and the dollar subsequently recovered ground. Aside from this, the weekend’s big political news was the passage of tax reform legislation through the Senate, after a frantic day of deal making. The Bill will now go through a reconciliation process with that passed by the House of Representatives. Today at 15:00 GMT Factory Orders data will be released. Services survey data will be released by Markit and ISM tomorrow afternoon, and on Friday the Non-Farm Payrolls report will be released.

UK News - 04/12/2017

Guardian: Ireland: no go-ahead for Brexit talks to move on. The Irish government is not immediately ready to approve Brexit talks moving on to the next phase although progress has been made, an Irish minister said at the start of a crucial day for the negotiation process.

FT: Britain and EU on brink of Brexit divorce deal. Britain and the EU are on the brink of sealing a Brexit divorce deal on Monday, as Theresa May travels to Brussels with potential solutions in sight for the two biggest political obstacles to opening trade talks.

Telegraph: Retired detectives who made porn allegations against Damian Green could be prosecuted, Met chief says. Cressida Dick condemned the behaviour of former Scotland Yard officers after they spoke out about porn allegedly found on the the then Deputy Prime Minister’s computer during a raid on a separate matter in 2008.

News in Brief - 01/12/2017

GBP

Sterling had another good day yesterday, extending earlier gains which were driven by overnight political news later in the afternoon and evening. The only major data release was the Nationwide House Price Index, which rose 0.1% in November. No new material news was added to the week’s political developments, which have given sterling a boost on the increasing chances of a breakthrough in Brexit negotiations over the coming weeks. This morning at 09:30 GMT, Markit’s Manufacturing Purchasing Managers’ Index will be released.

EUR

The euro saw further losses to sterling yesterday, but after a brief spot of weakness in the morning, the dollar came under severe pressure in the afternoon and EURUSD quickly headed back up towards levels last seen on Monday. Yesterday’s key data release was European Consumer Price Index inflation, which rose to 1.5% year on year in November, slightly less than expected. The core index, which does not include fuel, was up only 0.9% year on year, broadly unchanged over the last couple of years. Eurozone Unemployment, however, fell further to 8.8%, compared to 10% as recently as Q4 last year.

USD

After a relatively uneventful start to the day, USD came under heavy sell pressure in the afternoon, possibly related to end of month portfolio rebalancing trades from large institutional investors. The afternoon’s data was reasonably encouraging, if anything: Personal Spending and Income data for October beat expectations, while the Personal Consumption Expenditures Price Index rose 0.2% on the month. The Chicago Purchasing Managers’ Index dropped slightly from the 6 year high seen last month, while still reflecting rapid activity growth among the surveyed businesses. Today at 14:30 the Federal Reserve’s Robert Kaplan will speak, followed at 14:45 GMT and 15:00 by Manufacturing survey indices from Markit and ISM. Kaplan’s Fed colleague Harker will speak at 15:15.

UK News - 01/12/2017

Telegraph: Donald Trump’s ‘working visit’ to UK dropped as tensions with Theresa May grow over president’s far-Right retweets. US diplomats have dropped plans for Donald Trump to conduct a visit to Britain in January amid a war of words between the two countries’ leaders.

Guardian: Fortnum & Mason struggling to recruit staff after Brexit vote. The boss of Fortnum & Mason says the world famous London store is struggling to recruit staff after the Brexit vote with the situation most acute in its restaurants.

News in Brief - 30/11/2017

GBP

Sterling hit a two month high against USD overnight, as good news on the political front continued to break. After Monday’s reports that a financial settlement had effectively been reached in Brexit talks, The Times reported overnight that a “negotiator” had said a breakthrough on the Northern Ireland border issue was developing. The border issue is the last substantial block to true trade negotiations starting, ahead of a major EU summit on December 14th. Notably, Eurosceptic elements of the Conservative Party have been quiet this week, with no major figures attempting to blast May’s concession on the divorce bill. Nationwide’s House Price Index was released this morning, showing a 0.1% increase in November.

EUR

EURUSD traded sideways yesterday, after the euro pared back some of its recent gains on Tuesday. The crucial story of the last week has been the possible resumption of coalition talks between Angela Merkel’s CDU party and former partners the Social Democrats. Although t here’s been no major breakthroughs, news emerged that the Social Democrats are in the process of passing party resolutions to enable the party leadership to negotiate for a coalition. Yesterday’s data included survey figures from the European Commission that showed various confidence indices at multi decade highs, including a 10 year high for the Economic Sentiment Indicator. Employment plans from businesses were the most optimistic in 30 years, further underlining the drastic turnaround in the eurozone’s economic fortunes over the last couple of years. This morning’s main release will be eurozone Consumer Price Index inflation at 10:00 GMT, which will be accompanied by the Unemployment Rate.

USD

Although USD struggled to make inroads against the euro and weakened to sterling, the greenback did not perform too badly yesterday and made enough gains elsewhere to leave the weighted USD index DXY trading flat on the day. Gross Domestic Product growth in the third quarter was revised up to an annualised rate of 3.3%, as forecast, as the additional data available since the advance estimate indicated the economy had seen more investment than previously thought. Pending Home Sales also rose by substantially more than expected in October, rising 3.5% to buck the downwards trend seen in recent months. Today at 13:30 GMT Personal Spending and Income data will be released, alongside the crucial Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation measure.

UK News - 30/11/2017

Reuters: Trump hits out at May over criticism of sharing far-right videos. U.S. President Donald Trump sharply rebuked British Prime Minister Theresa May on Twitter after Britain criticised him for retweeting anti-Islam videos originally posted by a leader of a British far-right fringe party.

Guardian: NHS plans to ration care access in bid to force through extra funding. NHS bosses are to meet to discuss plans to ration and delay patients’ access to care, which could set them on a collision course with ministers over health funding. NHS England’s board will publicly debate what the service will and will not be able to afford to do next year after Philip Hammond gave it less than half the extra money it said it needed.

Times: Britain close to Irish border deal. EU leaders are preparing to offer a two-year Brexit transition deal as early as January after negotiators said that they were close to a breakthrough over the Northern Ireland border.

News in Brief - 29/11/2017

GBP

Sterling was trading down yesterday, before news emerged in the evening that Britain and the EU have reached a preliminary agreement on the Brexit divorce bill, previously a sticking point in negotiations. The news, if confirmed, would represent a significant milestone in Brexit negotiations, which could then proceed to substantive matters of trade and a transitional agreement. The question of the Irish border remains a stumbling block, as does the stability of Theresa May’s Government, which may struggle to find enough internal political support for the concessions. Last night’s price action also shows the extent to which headline risk remains a factor for sterling – any setbacks or near collapses in talks are likely to be felt just as keenly as last night’s good news.

EUR

The euro sold off to both GBP and USD yesterday, although for different reasons, with USD well bid due to progress in tax reforms and sterling rallying last night on political news. Yesterday’s data included an on-expectations print for German GfK Consumer Climate. This morning’s data has included a surprise contraction in monthly French Consumer Spending, which fell 1.9% in October, and a miss for Spanish Consumer Price Index inflation, which rose by 1.6% year on year, unchanged from last month and below expectations.

USD

USD performed well in a broad sense yesterday, with the weighted USD index DXY rising as tax reform legislation continued to make slow progress, ahead of a vote as early as tomorrow. The Senate budget committee yesterday voted to send the Republican tax bill to the floor for a vote, in a sign of building momentum for the bill. The majority of economist opinion remains united in concluding the long term effect of the bill on growth will not be a game changer for the economy, but the legislative progress may nonetheless be taken as a positive for the dollar. Incoming Federal Reserve Chair Jerome Powell testified on his nomination yesterday, and was utterly true to form, steering well clear of fiscal policy, cautiously hawkish on rates, and advocating a light regulatory approach. Today at 13:30 GMT revised Gross Domestic Product growth data will be released, and at 15:00 outgoing Fed Chair Janet Yellen will testify to lawmakers.

UK News - 29/11/2017

Guardian: Paying Brexit bill is Britain’s obligation to EU, says Grayling. The reported financial settlement the UK is set to pay on leaving the European Union would be “meeting the obligations we’ve built up, no more or less than that”, one of the cabinet’s leading Brexiters has said.

Sun: FINAL COUNTDOWN Brexit divorce bill amount – how much will leaving the EU cost UK taxpayers?. Theresa May has tabled a whopping offer to the EU in a bid to move talks forward and start negotiating a future trade deal, European sources have said. The deal is set to be formally offered to Jean-Claude Juncker when the PM meets him on December 4.

News in Brief - 28/11/2017

GBP

Aside from a brief patch of volatility, this morning’s Financial Stability Review and Bank Stress Test results from the Bank of England have passed without incident for sterling. The seven largest lenders tested in the exercise passed the stress test, despite the BoE modelling a doomsday scenario where the domestic economy contracts 4%, global growth is -2.4%, and large falls are seen in domestic and international property prices. The Banks were also resilient to a “disorderly Brexit”, without a transitional agreement with a smooth change to new trading arrangement with the EU. Speaking to reporters, Mark Carney went as far as recommending how long he thought a Brexit transition period to be – 18 to 24 months at the least, to be agreed “the sooner the better”.

EUR

The euro maintained its momentum for most of the day yesterday, reaching a two month high against USD, before the greenback found its legs and began to rally, leaving EURUSD trading lower this morning. The selloff seen in Chinese equities continued overnight, but was of little benefit to the single currency, as past risk-off moves have been occasionally. This morning’s data will include the German GfK Consumer Climate survey at 12:00 GMT.

USD

After a mixed start to the week, USD began to regain momentum yesterday afternoon and has had a mini rally since then. Monthly New Home Sales data showed sales surging to their highest level in a decade, beating expectations by a wide margin. The calendar gets significantly more interesting today, with several data releases in the afternoon and nomination testimony from the incoming Federal Reserve Chair Jerome Powell to lawmakers. The Goods Trade Balance will be released at 13:30 GMT, accompanied by Wholesale Inventories. House Price Indices from the FHFA and Case Shiller will be released at 14:00, followed at 15:00 by CV Consumer confidence and the Richmond Manufacturing Index. Powell’s testimony will start at 14:45, although new information on monetary policy seems extremely unlikely given he has already released a statement in support of policy continuity.

UK News - 28/11/2017

TELEGRAPH: David Davis under fire for 'editing' 58 reports into economic effect of Brexit - saying they will not damage EU talks. Dozens of studies into the impact of Brexit on various parts of the economy do not contain any information which will damage the negotiations with the European Union, David Davis has said.

REUTERS: UK banks could cope with "disorderly" Brexit, Bank of England says. Britain's banks could cope with a "disorderly" Brexit without needing to curb lending or be bailed out by taxpayers, the Bank of England said on Tuesday after carrying out its annual health check on lenders.

News in Brief - 27/11/2017

GBP

Sterling has shrugged off the weekend’s headlines about ongoing Brexit negotiations to trade broadly flat vs USD compared to Friday afternoon, while avoiding further losses against the euro also. Politics will remain in focus this week, as Theresa May attempts to find a solution to the Northern Ireland border issue ahead of a crucial European leaders summit on the 14th December. In the meantime, Ireland’s Taoiseach Leo Varadkar is attempting to avoid a snap election, potentially complicating any negotiations. No data will be released today, but the Bank of England’s Chief Economist Andy Haldane will speak at 14:30 GMT. Later in the week, BoE stress test results will be released alongside the latest Financial Stability Report on Tuesday, and Manufacturing Purchasing Managers’ data will be released on Friday.

EUR

The euro regained its mojo against both sterling and USD last week, as it the likelihood of Angela Merkel managing to hack together a coalition appeared to increase. The euro was further strengthened by the release of the German Ifo Business Climate survey, which showed business confidence in the eurozone’s largest economy is at all-time record highs. Politics will remain firmly in focus this week for the euro, as Merkel begins coalition talks with her former partners, the Social Democrats. Nonetheless, talks are expected to be protracted, and a conclusion seems unlikely this week. No euro data will be released today, and the calendar will see a slow start tomorrow morning with German Import Prices and Money Supply. Later in the week, the Flash Estimate of eurozone Consumer Price Index inflation will be released on Thursday.

USD

The US heads back to work in earnest after Thanksgiving this week, and politics is likely to remain a key driver for USD, which remains on the back foot against the euro despite halting its losses on Friday night. Republican lawmakers are reported to be racing to pass Tax Reform legislation by the end of the year, meaning USD-relevant details may emerge throughout the week, though the vast majority of economists do not believe the tax plan as currently mooted will have a substantial beneficial effect on the economy. New Home Sales will be released today at 15:00 GMT, followed by a speech from the Fed’s Neel Kashkari at 22:30. Later in the week, preliminary Gross Domestic Product growth for the third quarter will be released on Wednesday, followed by the Personal Expenditures Price Index on Thursday.

UK News - 27/11/2017

REUTERS: No Irish border deal before EU trade agreement - British minister. LONDON (Reuters) - Britain will not resolve the question of the Irish border after Brexit until it has also agreed the outline of a trade deal with the European Union, the country’s International Trade Minister Liam Fox said on Sunday.

GUARDIAN: White paper to set out industrial strategy in bid to boost UK productivity. The government is to highlight five key areas where the UK needs to improve its performance when it reveals on Monday the details of a new industrial strategy designed to increase productivity.

SUN: MAY COURT OUT Theresa May is thinking of handing the European Court of Justice a referral system for EU nationals in post-Brexit Britain. The Sun today reveals reports that she has held talks about a referral system to the ECJ for EU nationals who stay here. UK judges would refer a case to Luxembourg if a query arose on a point of law that has not previously been addressed during our time as a member state..

News in Brief - 24/11/2017

GBP

Sterling’s seven day winning streak against the US dollar finally came to an end yesterday, as GBPUSD pared its recent advances back slightly. Yesterday’s data included an unrevised 04% reading for Gross Domestic Product growth in the 3rd quarter, and growth of 0.2% and 0.4% respectively in Business Investment and the Index of Services, both of which enjoyed large upwards revisions to growth in the second quarter. This morning’s headlines have included some comments from Theresa May, who spoke to media in Brussels, reinforcing how eager the UK is to move Brexit talks on from divorce payments to a transitional agreement and future trade arrangements. The Telegraph reported this morning that May will tell Donald Tusk that she is prepared to give more ground on the Brexit divorce bill in exchange for progress in talks, potentially a sterling positive development if May’s gambit is successful.

EUR

Favourable headlines from Germany have helped the euro further consolidate its gains versus USD yesterday, as official sources from the previously coalition-averse SPD party confirmed that they were open to talks with Angela Merkel’s ruling CDU. Yesterday’s meeting minutes from the ECB showed a broad consensus in the ECB’s recent reduction and extension of bond buying, although several members were reportedly concerned that markets expected too much from the ECB beyond the current programme. This morning’s biggest release has been the IFO German Business Climate survey, which showed a record high in optimism among the surveyed German businesses.

USD

The weighted USD index DXY traded flat yesterday and overnight, as the United States enjoyed Thanksgiving and no data was released. Today at 14:45 BST the US flash Manufacturing and flash Services PMIs will be published, while US news flow focuses on the ongoing net neutrality battle and embattled US Senator Roy Moore.

UK News - 24/11/2017

SUN: TAKEGOVER Leave campaign boss Michael Gove has won Theresa May’s backing in a cabinet tussle over clean break from EU. LEAVE campaign boss Michael Gove has won Theresa May’s backing in a furious Cabinet tussle over a clean Brexit from all EU rules, friends say. The PM’s top table is bitterly split over how close to stick to regulations issued by Brussels after the UK leaves.

REUTERS: May calls on EU to move with Britain to open Brexit trade talks. British Prime Minister Theresa May repeated her wish on Friday to make a joint move with the European Union to open negotiations on a post-Brexit trade deal.

News in Brief - 23/11/2017

GBP

Yesterday marked seven consecutive sessions of sterling appreciation against USD, despite the Autumn Budget delivered by Chancellor Phillip Hammond featuring large downgrades to the official growth forecast. Phillip Hammond was dealt an exceptionally poor hand by the OBR, which downgraded its growth forecasts out to 2022 significantly. However, markets responded positively to the fact that the Chancellor responded with a bolder than expected spending package, with NHS funding and giveaways on fuel duties and first home buyers the focus. The net effect of the budget’s spending plan, combined with the lower growth forecast, means that government borrowing is expected to be substantially higher over the coming years, though should still fall in percentage terms relative to overall GDP. This morning’s data has included the second estimate of Gross Domestic Product in the second quarter, which confirmed the expected 0.4% growth.

EUR

After a slow start to the week the euro made significant inroads against USD yesterday, and has maintained a firm tone this morning on the news that Germany’s second largest party, the SPD is ready to discuss a potential coalition with Chancellor Angela Merkel. SPD leader Martin Schulz had previously ruled out support for Merkel after their previous coalition had left the party suffering in the last election. Yesterday’s only data release of note was the Eurozone Consumer Confidence index, which came in at 0, which indicates no change. The figure seems somewhat more cheerful, however, when one considers the fact it is the best reading since 2007, and that a reading below 0 represents overall pessimism among survey respondents. This morning’s data has included some explosively strong French, German and Eurozone Manufacturing and Services Purchasing Managers Indices, with all of the readings exceeding expectations and suggesting extremely high confidence among the surveyed businesses. At 12:30 GMT meeting minutes from the European Central Bank’s most recent monetary policy meeting will be released.

USD

The US dollar is on the back foot this morning, despite the release of the minutes last night from the most recent Federal Reserve policy decision meeting, which showed an overwhelmingly positive outlook for the US economy by policymakers. All but confirming the next interest rate hike in December, the Fed noted multiple areas of positive development, most notably the fact that the labour market is operating “at or above full employment” and that GDP being likely to “grow at a pace exceeding that of potential output”. Combined with the fact that the slowdown in inflation was attributed to “temporary or idiosyncratic factors”, the path looks set for multiple further interest rate hikes next year. However, the Fed did express concern that financial markets may be overheating, which would call in to question the wisdom of raising interest rates too quickly, and as a result, the greenback is being sold off against almost all its major pairs today.

UK News - 23/11/2017

REUTERS: Waiting for May, Brussels eyes December Brexit deal. BRUSSELS (Reuters) - When Theresa May visits Brussels on Friday, EU negotiators will be listening intently for signs the British prime minister is preparing to risk a domestic backlash and raise her offer to secure a Brexit deal in December.

GUARDIAN: Chancellor targets English regions with multibillion investment. English regions including the north and the Midlands will receive a multibillion-pound investment in an effort to reduce the weighting of the economy towards London. Speaking as he announced plans aimed at improving transport links and devolving more power to the regions, Philip Hammond said “far too much of our economic strength is concentrated in our capital city”.

News in Brief- 22/11/2017

GBP

Sterling traded sideways yesterday, ahead of today’s Autumn budget statement from Chancellor Phillip Hammond. Yesterday’s Industrial Order Expectations index from the Confederation of British Industry showed order books at their strongest for almost 30 years, as sterling’s weakness over the past year has its expected effect on the competitiveness of UK goods. Members of the Bank of England’s rate setting Monetary Policy Committee testified to lawmakers, although little new information about the outlook for monetary policy was given. Thus, eyes will be on Chancellor Phillip Hammond, who will today deliver a career defining budget, with both Theresa May’s Government and his own position under attack from multiple directions. UK macro data is reasonably strong at the moment, and sterling has responded somewhat favourably to ongoing efforts to progress Brexit negotiation. A budget that delivers productivity boosting measures while avoiding growth-harming spending cuts could plausibly be good for sterling, while another series of failed proposals like those in the March Budget could risk the Chancellor’s role.

EUR

EURUSD closed not far from open yesterday, as markets waited in vain for some form of news about the future of Germany’s government. Various news outlets are reporting this morning that Angela Merkel is making a renewed attempt at a “grand coalition” with her previous partners, the Social Democrats, a prospect that the party previously rejected, but would stave off another election. Today at 15:00 GMT eurozone Consumer Confidence figures will be released.

USD

USD highlights of the past 24 hours have included fresh all-time highs against the Turkish Lira, and some weakness, notably against the Japanese yen, after outgoing Fed Chair Janet Yellen spoke once again against tightening rates too quickly. The data calendar is more eventful today, and includes Durable Goods Orders at 13:30 GMT, accompanied by weekly Unemployment Claims. Expectations are high for the Core Durable Goods Series, which excludes volatile items like transportation, and rose 0.7% last month. Minutes from the Federal Open Market Committee’s latest meeting will be released at 19:00 GMT, and as always have the potential to provide some insight into the balance of opinion on the committee.

UK News - 22/11/2017

TELEGRAPH: Judges under 'intolerable pressure' from social media, says new Lord Chief Justice. In his first interview since becoming the most senior judge in England and Wales last month, Sir Ian Burnett warned that abuse of judges "undermines the rule of law" and damages confidence in the judiciary.

REUTERS: Britain to detail Brexit bill when EU agrees to move talks forward. Prime Minister Theresa May will only detail how big a divorce settlement Britain is willing to pay the EU when the bloc gives a commitment to moving talks forward, according to a plan rubber-stamped by even her most pro-Brexit ministers.

DAILY MAIL: The EU is insulting Britain by demanding a huge payment before discussing trade, says a top GERMAN politician. The EU is ‘insulting’ Britain by demanding a huge upfront payment before talking about trade, a senior German politician said tonight. Hans-Olaf Henkel said EU negotiator Michel Barnier was trying to get Britain to ‘name a price without knowing what you are going to get for it’.

News in Brief - 21/11/2017

GBP

The week got off to a slow start yesterday, with subdued volatility on many major fx pairs. Sterling maintained its momentum against USD and EUR, shrugging off any domestic political headlines. The Bank of England’s Dave Ramsden spoke in London, saying that Brexit was reinforcing the low growth in productivity seen in recent years. Today at 10:00 GMT we will hear a whole lot more from the BoE, as senior Monetary Policy Committee members including Governor Mark Carney testify to Parliament’s Treasury Committee. Given the pessimistic assessment of potential growth in the last Inflation Report, the MPC will have plenty to talk about, and potentially conflict with the committee’s predominantly Conservative membership, as has been the case in the past.

EUR

Political risk continued to weigh on the euro yesterday, as Angela Merkel suggested that she was not interested in a minority government, suggesting that either coalition talks will be restarted, or Germany will head to the polls in a snap election. The situation remains very fluid and either outcome remains entirely plausible, with the euro almost certainly likely to take a leg lower in the event of a snap election. No headline euro data will be released today, meaning the focus on German politics will be all the more intense.

USD

Euro weakness this week seems to have given the US dollar an opportunity to rally, and the greenback was generally well bid on a number of pairs including against CAD, EUR, JPY, and AUD yesterday and overnight. Yesterday’s data included a strong beat on the CB Leading Index, an amalgamation of various forward looking economic indicators. Janet Yellen, who recently said she would be stepping down from the Federal Reserve’s Board altogether upon the end of her tenure as Chair, will speak today at 23:00 GMT.

News in Brief - 20/11/2017

GBP

Sterling trended up against the US dollar last week, and has opened this week in a similar fashion, while also performing well against the euro. The weekend’s political developments have seen the prospect of an increased offer for “divorce” payments to the European Union become likely, as Theresa May seeks to break a deadlock in negotiations. Such a breakthrough would likely prove sterling positive. No headline data will be released today, But the Bank of England’s David Ramsden will speak at 18:30. Later in the week, the Autumn Budget will be released on Wednesday.

EUR

It’s been some time since the euro has felt the effects of political turmoil, but over the weekend the single currency sold off slightly as German coalition talks collapsed. The centrist Free Democrats party pulled out of negotiations, saying that it was better not to govern, than govern badly, raising the prospect of another election. One of the core differences between potential coalition partners was refugee policy, with several key parties other than Angela Merkel’s CDU wishing to take a harder line on the issue. This morning’s data has included a firm print for the German Producer Price Index, and European Central Bank President Mario Draghi will testify to European lawmakers today at 14:00 BST.

USD

The dollar came under pressure last week on the whole, but given the euro’s political turmoil over the weekend the greenback seems to have an opportunity to reverse last week’s losses on EURUSD. No headline data will be released today, but the week will see some very dollar-relevant events beginning Tuesday with a panel discussion featuring Janet Yellen and former Bank of England Governor Mervyn King. Wednesday is also a red letter day with Durable Goods Orders released ahead of the latest meeting minutes from the rate-setting Federal Open Market Committee

News in Brief - 17/11/2017

GBP

Sterling was relatively stable yesterday, picking up a handful of basis points against USD and EUR, with its momentum continuing this morning. October’s retail sales report showed that year on year growth in retail sales plummeted to its lowest level since 2013, but this was partly influenced by a particularly strong burst of growth in sales at the end of last year. Monthly sales in October were actually fairly solid, rising 0.3%, better than expected. Ultimately the takeaway from October’s report is that the UK consumer remains under pressure from falling real wages, and can’t be relied on to deliver the kind of spending that propped the economy – and sterling – up in recent quarters. On a short term basis the modest growth we’ve seen in recent months is indeed somewhat encouraging, but with real wages likely to shrink further it’s difficult to avoid the conclusion that the outlook for consumer spending in the UK remains bleak.

EUR

Euro news flow was subdued yesterday, and the single currency retreated slightly against GBP, while drifting lower against USD. Final eurozone Consumer Price Index data for October showed headline inflation at 1.4% year on year, broadly consistent with the trend in recent months. This morning’s data has included the eurozone’s Current Account, which showed XXX. Elsewhere, Angela Merkel is expected to press ahead with coalition talks today, after reportedly fruitless all night negotiations with potential partners.

USD

The dollar has come under pressure overnight, notably against the yen where it has dropped to its lowest level since last month. Further progress on tax reforms has been made with the House of Representatives finally voting through a tax cut bill, although the fiscal implications of the package may increase US government debt by $6.9bn, according to one economic model. More optimistic assessments of the bill place the net deficit effect at around $1tn. Yesterday’s data releases included a higher than expected amount of weekly Initial Jobless Claims, a miss for monthly Import Prices, and a worse than expected reading for the survey based Philly Fed Manufacturing Index. Today at 13:30 BST monthly Building Permits and Housing Starts will be released.

News in Brief - 16/11/2017

GBP

Sterling was making gradual inroads against the USD during the morning, only to see all of its gains evaporate after the dollar found its feet at the start of the afternoon. Against the euro, the day was lived in reverse; a morning with sterling weakness was later compensated during the afternoon. This morning brought the British pound some weakness for breakfast after Politco reported the European Union had turned down British attempts to establish a bespoke trade deal with the EU. The story based on leaked documents mentioned that the stance of the EU is “no direct branching in areas like financial services” and only “limited EU commitments to allow cross border provision of services”. Average Weekly Earnings were slightly stronger than expected with an annualized growth in the last 3 months of 2.2%. Today at 9:30 BST we have Retail Sales, concluding the UK triad of top tier releases of this week.

EUR

The euro was on a solid rally yesterday throughout the morning, extending the gains it made earlier this week against most of the G10 currencies. A bit after midday euro began to retreat, but not before putting a four week high on the board against USD and breaching multi-year record highs against Scandinavian currencies. Global risk sentiment seems to have been the driver behind this euro strength. Little data was released for the Eurozone yesterday, besides the French final Consumer Prices that grew 0.1% as expected in October. Today we have the final Consumer Price numbers for the entire Eurozone at 10:00 BST.

USD

The US dollar weakened across the board during the morning, only to turn things around after midday and close more or less at the same place where it started against sterling, euro and a crowd of other currencies. The Consumer Price Index came in “unexpectedly on expectations” after having core CPI disappointing in 6 out of the last eight months. Now CPI seems to be making its way back to its trend level of 0.2% growth per month the story of the Federal Reserve that the weak inflation seen earlier this year was due to transitory factors is gaining in credibility. Core Retail Sales disappointed but a strong headline reading, supported by hurricane-boosted car sales, made up for this and started the USD afternoon rally. Today at 13:30 BST we have unemployment claims together with Import Prices and the Philly Fed Manufacturing Index, followed by Industrial Production at 14:15 BST.

UK News - 16/11/2017

FT: Banks urge Brexit trade deal that keeps financial services on track Free movement for professionals vital to preserving cross-border flows, says industry. Britain’s banking industry has called for a post-Brexit trade deal to allow financial services professionals to continue travelling freely across Europe on assignments of up to three years. The proposal, coming shortly after David Davis, the Brexit secretary, promised to seek a similar travel regime for bankers, is one of several recommendations in a report to be published on Thursday by UK Finance, the industry body, and law firm Clifford Chance. The report presents the most detailed blueprint of how a long-term agreement on financial services between the UK and EU might work in preserving the cross-border flow of trading, capital and staff after Brexit.

Reuters: UK retail sales fall on year for first time since 2013 as inflation and tough comparison weigh. British retail sales recorded their first year-on-year decline since 2013 last month, despite solid growth in volumes from September, as households battled with fast-rising prices.Britain’s Office for National Statistics said October’s 0.3 percent year-on-year fall in sales volumes was the biggest since March 2013 and reflected a very strong performance by retailers in October 2016. Looking at the three months to October, which smooths out monthly volatility in the data, sales growth picked up to 0.9 percent from 0.7 percent in the three months to September. Compared with a year earlier, however, sales volumes in the three months to October were just 1.1 percent higher than the year before, the weakest growth rate since May 2013.

News in Brief - 15/11/2017

GBP

Dollar weakness allowed GBPUSD to rally yesterday, despite a soft inflation print and ongoing political farce in the UK, but the pound was less fortunate against the euro, where it fell to fresh lows for the month yesterday and again this morning. Yesterday’s parliamentary shenanigans included prominent Conservative MPs defying the Government’s efforts to legislate a fixed date for Brexit, despite – in MP Dominic Grieve’s words – “blood-curdling threats”. YEsterday’s inflation data showed price pressure broadly unchanged in the UK, with the headline Consumer Price Index remaining at 3.0% year on year, the same as last month. This morning’s labour market data has put further mild pressure on the pound, after the Unemployment Rate remained unchanged at 4.3% in September and Average Weekly Earnings growth remained at 2.2%.

EUR

The euro has had an incendiary 24 hours, after yesterday’s firm German GDP data combined with renewed global risk aversion overnight to create perfect conditions for strength in the single currency. Yesterday’s data included a firm print for the German ZEW Economic Sentiment Survey, which rose to 18.7 in its latest index reading, although eurozone Industrial Production fell by 0.6% as expected, after a big 1.4% increase previously. Today at 10:00 BST monthly Trade Balance data will be released for the eurozone.

USD

The dollar took an absolute beating yesterday, as investors sold global risk assets and US treasuries saw falling yields across large parts of the sovereign curve. Fed Chair Janet Yellen appeared on a panel with her colleagues Kuroda (Japan), Carney (UK) and Draghi (ECB), and although the topic was central bank communications, a few interesting tidnits emerged when Yellen acknowledged the difficulty of policy makers expressing views on how they would vote ahead of a meeting. The Producer Price Index rose 0.4% in October, far above expectations, but this did little to support the Greenback. Today’s Consumer Price Index and Retail Sales releases at 13:30 GMT are therefore make or break for the greenback, and they will be followed by Business Inventories at 15:30 BST.

UK News - 15/11/2017

FT: Pro-EU rebel Tories hit back after being branded ‘mutineers’. Skirmish reflects rising tensions over Brexit legislation. Pro-EU Conservative MPs have reacted defiantly to a front-page article in the Daily Telegraph depicting them as “mutineers” because of their opposition to elements of the government’s Brexit legislation. In a skirmish that reflects growing tension in the Tory party, Anna Soubry, a backbencher, accused the newspaper of engaging in a “blatant piece of bullying”, while Heidi Allen, a colleague, challenged Brexiter critics to “bring it on”. Pro-EU Tories have also threatened to rebel over government attempts to impose a fixed exit date — March 29 2019 at 11pm London time — which they say would tie Britain’s hand in talks.

Reuters: UK employment falls in third quarter, pay growth lags inflation again. Reuters Staff The number of people in work in Britain fell by the most in more than two years in the three months to September, a latest sign of weakness in Britain’s Brexit-bound economy, official data showed on Wednesday. At the same time, the inactivty rate – a measure of people not in work and not seeking a job – rose by the most in nearly eight years, the Office for National Statistics said. The data showed the unemployment rate held at a four-decade low of 4.3 percent as the number of people in employment fell by 14,000 and pay growth remained much slower than inflation. The ONS said workers’ total earnings, including bonuses, rose by an annual 2.2 percent in the three months to September, compared with 2.3

News in Brief - 14/11/2017

GBP

Political turmoil finally began to weigh on sterling yesterday, leading to losses against EUR and USD. The UK’s chief Brexit negotiator David Davis spoke in the House of Commons yesterday and tried to appeal to Tory backbenchers when he told the parliament will be allowed to vote on the final Brexit deal coming out of the negotiations. Today at 9:30 BST the Consumer Price Index and the Producer Price Index will be made public. Bank of England Mark Carney will speak at 10.00 BST at the ECB conference in Frankfurt, alongside the Bank of Japan’s Kuroda and Mario Draghi of the European Central Bank.

EUR

After a quiet day yesterday, the euro enjoyed a modicum of strength this morning against the greenback based on some smashing German data. The first reading of the GDP jumped to 0.8% in the third quarter, bringing year on year growth. A solid reading in the final quarter might bring the German growth close to a scorching 3% annual growth. At 10.00 BST we will see the flash GDP reading for the entire eurozone, the ZEW Economic Sentiment survey and Mario Draghi speaking at a central bank communications conference hosted by the European Central Bank in Frankfurt.

USD

The weighted USD index DXY traded more or less flat on the day yesterday, though gains made against sterling stood out. The Republican Party continues to attempt to make progress on reconciling different tax reform bills proposed by Congress and the Senate, with last week’s news about the Senate proposing a delayed implementation for corporate tax cuts still reverberating in media. Outgoing Federal Reserve Chair Janet Yellen will also join the panel discussion with Draghi, Carney and Kuroda at the ECB conference at 10.00 BST. US Producer PRices are due at 13:30 BST.

UK News - 14/11/2017

Reuters: Weaker than ever, May faces test in parliament over Brexit plans Prime Minister Theresa May’s blueprint for Britain’s exit from the European Union faces a crucial test starting on Tuesday, when members of parliament try to win concessions from a weakened leader on the government’s legislation to sever ties. It is yet another battle for May after scandals and gaffes that have brought questions about her leadership into the open. As many as 40 of her MPs would support a no-confidence motion against her, according to the Sunday Times newspaper. But many sources in her governing Conservative Party say now is not the time to force her out because despite backing Britain remaining in the EU, even if reluctantly, they think she is still the best option to deliver Brexit.

FT: Euro climbs after German GDP data beat estimates The common currency got a boost on Tuesday after Germany reported stronger than expected economic data that provided the latest evidence of the acceleration of the eurozone’s biggest economy. Germany’s economic output climbed at a sequential clip of 0.8 per cent in the third quarter, exceeding economist expectations of 0.6 per cent. The report was the most recent sign of strength for the bloc’s powerhouse and bolsters the case for the European Central Bank to begin tightening monetary policy next year.

News in Brief - 13/11/2017

GBP

After a solid performance on Friday, sterling has gotten out of the wrong side of the bed this morning, erasing almost all of last week’s gains versus the US dollar. UK politics was once again thrown into upheaval as reports emerged yesterday that the amount of Conservative party MPs willing to sign a vote of no confidence in Theresa May’s leadership was approaching the critical threshold for a challenge to the Prime Minister’s position. Politics is therefore likely to dominate sterling this week as every scrap of information about the likelihood of May getting deposed is priced into financial markets. There are some top tier data releases on the calendar, including Price Indices on Tuesday and Labour Market data on Wednesday.

EUR

After ending last week stronger amid a wave of risk aversion in global markets, the euro sold off slightly overnight. This morning’s data has included German Wholesale Prices, which changed 0.0% in October after a 0.6% spike last month. No further data will be released today, but the eurozone calendar livens up tomorrow with German Gross Domestic Product data out early in the morning, followed by eurozoneGDP and the widely followed ZEW Economic Sentiment Survey later in the morning.

USD

USD was well bid overnight, after coming under broad pressure in the second half of last week. Donald Trump’s visit to Asia continued with a surprise serenade from Rodrigo Duterte, who sung hit Filipino love song “You are the light” at a dinner in Manila. The Philippines President’s regime has been widely criticised by human rights groups for a ferocious campaign of extrajudicial killings against alleged drug dealers, something Trump has praised Duterte for doing an “unbelievable job” with, despite tensions in the two leaders’ public communication at other times. The tax reform debate will continue to rage in the United States this week, as the two houses of Congress attempt to reconcile and pass legislation, with possible consequences for USD. This will be a busy week for data, although no headline releases are scheduled for today. Producer Prices will be released tomorrow, followed by Consumer Prices on Wednesday alongside Retail Sales.

UK News - 13/11/2017

FT: Pound drops after Theresa May no-confidence report. Sterling hit as Tory MPs said to plan challenge against UK prime minister. The pound fell fast on Monday following reports over the weekend that a group of Conservative members of parliament had agreed to sign a letter of no-confidence in Theresa May, UK prime minister.The moves wiped out more modest gains made by the pound on Friday, following a press conference from UK and EU Brexit negotiators. Monday’s heavy selling underscored sterling’s vulnerability to political factors such as the UK’s talks on the terms of its departure from the EU. A report in The Sunday Times said that 40 MPs had agreed to sign the letter of no-confidence amid concerns about Mrs May’s handling of Brexit.

News in Brief - 10/11/2017

GBP

Sterling saw some intraday volatility yesterday, ultimately closing higher against USD and lower versus the euro. Little headline data was released, and news media were focussed on domestic political turmoil and ongoing Brexit negotiations, the latest round of which will conclude this week. Divorce payments remain the main point of contention, with the EU reportedly insisting on financial agreement by the end of the month in order to progress talks to a transitional agreement. Reports have emerged this morning that Theresa May is seeking to increase the current £20bn offer, a development that could potentially prove strongly sterling positive if it leads to a breakthrough in talks.

EUR

The euro benefitted from a mild risk-off move in global markets yesterday, as the Nikkei 225 index led equities lower, implied volatility from S&P500 options spiked, and other funding or haven currencies such as CHF and JPY performed well against USD. How far the move will extend remains to be seen. Yesterday’s data included a big upgrade in the European Commission’s official economic forecasts for the eurozone. Growth is now expected to be a whopping 2.3% this year in the eurozone, and 1.9% by 2019. Helpfully, the Commission included a forecast that growth will fall to 1.5% in 2017 in the United Kingdom, and 1.1% by 2019 as Brexit uncertainty weighs on investment intentions. This morning’s data has included a strong recovery in French Industrial Production, which rose 0.6% after a 0.2% fall previously.

USD

USD performed poorly on the whole yesterday, as tax reform proposals continued to hit stumbling blocks of various shapes and sizes. The Senate revealed plans to delay cuts to corporate taxes until 2019, in a bid to mitigate the fiscal effects of the tax cut. The legislation is expected to move to the house for a vote next week. But between concerns about the fiscal impact of the tax cut, and fighting about the deductibility of state and local taxes, meaningful tax reform remains a challenging proposition for the GOP and a distant hope for dollar bulls. The US will enjoy the Thanksgiving holiday today, and no data will be released.

UK News - 10/11/2017

FT: Theresa May ready to increase £20bn Brexit divorce offer. Eurosceptics accept more money may be needed to break talks deadlock. Theresa May is ready to increase Britain’s offer to the EU over the Brexit divorce bill, after signs that the hard Eurosceptics in her party will tolerate paying more money to break the deadlock in negotiations. Mrs May has said that Britain “will honour commitments we have made during the period of our membership” and her team are working on different scenarios that would see her considerably increase the €20bn she has already put on the table. No big breakthroughs on money were made in the sixth round of Brexit talks, which conclude on Friday in Brussels.

Reuters: Britain agrees to set EU “Exit Day” in law. Britain’s government said on Thursday it would use legislation to fix the time and date of the country’s European Union exit, addressing concerns of Brexiteers who fear slow negotiations and opposition to the divorce could cause delays. The government said it was proposing a change to the EU (Withdrawal) Bill currently making its way through parliament to set the exit for 2300 GMT on March 29, 2019. “We’ve listened to members of the public and Parliament and have made this change to remove any confusion or concern about what ‘exit day’ means,” Brexit minister David Davis said in a statement. The date has previously been implied by a fixed two-year negotiating period triggered on March 29, 2017, but not explicitly stated in law.

News in Brief - 09/11/2017

GBP

Having sold off yesterday, sterling found its legs overnight and has managed to claw back some of its recent losses. Theresa May’s Government remains beleaguered, with Priti Patel, the international development secretary, resigning from the cabinet this morning following controversy over an unauthorised visit to Israel. Pressure is also mounting from Brussels, who have given a two to three week deadline for Britain to set out how much it is willing to pay as a Brexit divorce settlement. Economic data also failed to help, with the Royal Institute of Chartered Surveyors releasing its monthly survey of members opinions of their local housing markets, which showed a market fall in optimism. The net balance of surveyors reporting price increases in their areas fell to 1%, and the housing market was described as “stuttering”. Today at 13:00 GMT the National Institute for Economic and Social Research will release its latest Gross Domestic Product Growth estimate.

EUR

EURUSD traded sideways yesterday, but has seen a break above yesterday’s trading range this morning, helped along by yet another bumper surplus for the German Trade Balance. Yesterday’s paucity of headline dada continues into today, although the European Central Bank’s Economic Bulletin was released this morning. At 10:00 the latest official economic forecasts from the European Commission will be released.

USD

USD price action was deeply uninspiring against GBP and EUR yesterday, but the greenback continued its tug of war with petro and resource linked currencies yesterday, losing ground to the loonie, aussie, and kiwi. Donald Trump wrapped up his two day state visit to China with some comments on China’s trade surplus with the US, although interestingly he went as far as asking “who could blame” China for the situation, instead placing the responsibility on past US leaders for the situation. Conventional economic theory holds that it is the United States’ savings and investment levels, not Chinese or even US trade policy, that is primarily responsible for the trade balance. Today at 13:30 GMT, weekly Unemployment Claims will be released, followed at 15:00 by Wholesale Inventories.

UK News - 09/11/2017

FT: EU gives UK up to 3 weeks to make Brexit bill offer.  December summit could fall short on transition guidelines without settlement. Brussels is giving Britain two to three weeks to set out how much it is prepared to pay in the Brexit divorce settlement, warning that the EU will otherwise struggle to prepare this year for a transition deal the UK badly wants. According to the informal deadline, unless London makes a big financial offer this month, the bloc may be unable to adopt guidelines for the transition talks at a crucial summit in December. “We need to know soon,” said one senior EU negotiator. “There isn’t much time, there are no shortcuts.”

Reuters: In new test for PM May, aid minister resigns.  British aid minister Priti Patel was forced from office on Wednesday over undisclosed meetings with Israeli officials after Prime Minister Theresa May sought to reassert her diminished authority as she negotiates Brexit. Patel, a Brexit campaigner who is popular in the ruling Conservative Party, had to abandon a trip to Africa earlier on Wednesday after being summoned by May to answer questions on more unsanctioned meetings that breached diplomatic protocol. After a hastily arranged meeting not long after Patel landed in London, May’s office released her minister’s letter of resignation, in which Patel said her conduct in Israel had fallen “below the high standards” required of her post. “While my actions were meant with the best of intentions, my actions also fell below the standards of transparency and openness that I have promoted and advocated,” Patel wrote in the letter to May.

News in Brief - 08/11/2017

GBP

Sterling traded higher against USD and EUR yesterday, as political headlines dominated the news cycle and little headline UK data was released. New Car Registrations fell for the seventh consecutive month in October, registering a 12.2% year on year fall, according to the Society of Motor Manufacturers and Traders. Typically, consumers may delay big ticket purchases such as cars in a climate of economic uncertainty. Official UK Retail Sales remain in growth overall on a year on year basis, for now at least, but this morning’s data has included a surprise fall in the British Retail Consortium’s Retail Sales Monitor for October.

EUR

The euro has had an eventful start against USD this week, weakening throughout yesterday morning and afternoon before rallying in the evening – only to give up the same ground yet again this morning. Yesterday’s data included Sentix Investor Confidence, which rose sharply to 34.0, as the surveyed investors reported levels of confidence consistent with an economic boom. Producer Prices, in the meantime, rose 0.6% in September. This morning’s data has included the eurozone Retail Purchasing Managers Index, which showed a score of 51.1, slightly lower than expected. Later in the morning, hard Retail Sales figures will be released.

USD

The US dollar reached its strongest level against the euro since mid-July, while giving up ground against sterling and commodity linked currencies. Elsewhere, bond market volatility sank to record lows as markets wait for more information about the likely approach of newly nominated Fed chair Jerome Powell, and potential changes in fiscal policy due to tax reform. This afternoon at 15:00 GMT we have the Job Openings and Labour Turnover Summary. Tonight at 19:30 GMT Janet Yellen is due to deliver her first public speech since not being renominated as Fed chair.

UK News- 08/11/2017

Reuters: UK retailers suffer worst October since 2008. British retail spending fell last month at the fastest pace for any October since 2008 as consumers curbed purchases of non-food goods in the face of rising inflation, a survey showed on Tuesday. Retail sales values slid by an annual 1.0 percent on a like-for-like basis, which strips out changes in store size, the British Retail Consortium (BRC) said, compared with a 1.9 percent rise in September. Another survey from payments company Barclaycard (BARC.L) also showed weak consumer spending, with a similar split between spending on essentials at the cost of spending on discretionary items. Last week, the Bank of England raised interest rates for the first time in more than 10 years.

FT: Dublin calls for 5-year Brexit transition period.  Coveney rails against ‘game of chicken’ as Irish concerns of collateral damage mount. Ireland has called for a transition period of up to five years after the UK leaves the EU in March 2019, in a sign of Dublin’s mounting concern that it will suffer collateral damage from Brexit. Simon Coveney, Irish foreign minister, also told the Financial Times in an interview that it was “not realistic” to agree a fully fledged UK-EU free-trade deal next year, even though Theresa May, Britain’s prime minister, has set out just such a goal.

News in Brief - 07/11/2017

GBP

Sterling traded higher against USD and EUR yesterday, as political headlines dominated the news cycle and little headline UK data was released. New Car Registrations fell for the seventh consecutive month in October, registering a 12.2% year on year fall, according to the Society of Motor Manufacturers and Traders. Typically, consumers may delay big ticket purchases such as cars in a climate of economic uncertainty. Official UK Retail Sales remain in growth overall on a year on year basis, for now at least, but this morning’s data has included a surprise fall in the British Retail Consortium’s Retail Sales Monitor for October.

EUR

The euro has had an eventful start against USD this week, weakening throughout yesterday morning and afternoon before rallying in the evening – only to give up the same ground yet again this morning. Yesterday’s data included Sentix Investor Confidence, which rose sharply to 34.0, as the surveyed investors reported levels of confidence consistent with an economic boom. Producer Prices, in the meantime, rose 0.6% in September. This morning’s data has included the eurozone Retail Purchasing Managers Index, which showed a score of 51.1, slightly lower than expected. Later in the morning, hard Retail Sales figures will be released.

USD

The US dollar reached its strongest level against the euro since mid-July, while giving up ground against sterling and commodity linked currencies. Elsewhere, bond market volatility sank to record lows as markets wait for more information about the likely approach of newly nominated Fed chair Jerome Powell, and potential changes in fiscal policy due to tax reform. This afternoon at 15:00 GMT we have the Job Openings and Labour Turnover Summary. Tonight at 19:30 GMT Janet Yellen is due to deliver her first public speech since not being renominated as Fed chair.

UK News- 07/11/2017

Reuters: UK retailers suffer worst October since 2008. British retail spending fell last month at the fastest pace for any October since 2008 as consumers curbed purchases of non-food goods in the face of rising inflation, a survey showed on Tuesday. Retail sales values slid by an annual 1.0 percent on a like-for-like basis, which strips out changes in store size, the British Retail Consortium (BRC) said, compared with a 1.9 percent rise in September. Another survey from payments company Barclaycard (BARC.L) also showed weak consumer spending, with a similar split between spending on essentials at the cost of spending on discretionary items. Last week, the Bank of England raised interest rates for the first time in more than 10 years.

FT: Dublin calls for 5-year Brexit transition period.  Coveney rails against ‘game of chicken’ as Irish concerns of collateral damage mount. Ireland has called for a transition period of up to five years after the UK leaves the EU in March 2019, in a sign of Dublin’s mounting concern that it will suffer collateral damage from Brexit. Simon Coveney, Irish foreign minister, also told the Financial Times in an interview that it was “not realistic” to agree a fully fledged UK-EU free-trade deal next year, even though Theresa May, Britain’s prime minister, has set out just such a goal.

News in Brief - 06/11/2017

GBP

Sterling had a relatively quiet day on Friday, failing to recover any significant portion of its losses incurred after last Thursday’s Bank of England interest rate announcement. The weekend’s political headlines included more scandal for the Conservative Party, and a fresh batch of document leaks on offshore tax structures, though nothing that’s liable to directly affect the value of the pound for now. This will be a somewhat slow week for sterling data, beginning with the British Retail Consortium’s Retail Sales Monitor in the early hours of tomorrow morning. Later in the week, Industrial and Construction Output data will be released on Friday.

EUR

EUR nudged down slightly on Friday on the back of a rather empty economic calendar. The ex-Catalan leader Carles Puigdemont turned himself in with the police in Brussels yesterday, only to be released later, as Spain’s constitutional crisis continues. This has already been a busy morning for the euro data calendar, with Services Purchasing Managers Indices across the eurozone printing slightly lower than expected in many instances, although the overall Eurozone Composite PMI beat expectations to rise slightly to 56.0. Sentix Investor Confidence will be released this morning at 10:30 GMT, followed by the Producer Price Index at 11:00 BST.

USD

USD has had an uneventful start to the week, with the weighted DXY index trading flat since midnight. Friday’s Non-Farm Payrolls report showed the economy adding less jobs last month than expected by forecasters, while wages were flat on the month. The unemployment rate did fall to just 4.1% however, although the lack of dramatic market reaction to the report illustrates the reduced importance of the report for USD at present, due to the tight labour market. Donald Trump’s state tour of Asia will continue this week, after a round of golf and a fist bump with Japanese Prime Minister Shinzo Abe – and some comments overnight criticising Japan’s trade policies that sent JPY to its lowest level against USD since March. New York Fed Chair Bill Dudley will speak today at 18:10 GMT.

UK News- 06/11/2017

FT: Oil price hits 2-year high as Saudi Arabia targets elite Crude rises after crown prince crackdown leads to arrests of royals, ministers and tycoons. Oil hit a fresh two-year high on Monday after the weekend arrests of at least 11 Saudi Arabian princes and dozens of senior officials and prominent businessmen by the country’s new anti-corruption commission. Brent crude was up 0.8 per cent at $62.55 a barrel on Monday – its highest level since July 2015 – as uncertainty over the situation in Riyadh added to other factors putting upward pressure on oil prices.

FT: Huge leak of documents reveals Queen’s offshore investments Wilbur Ross and Lord Ashcroft also feature in ‘Paradise Papers’. A huge leak of financial documents has revealed the offshore interests of hundreds of high-profile companies and individuals, including millions of pounds invested by the Queen’s private estate in a Cayman Islands fund. The revelations are the result of lengthy investigations by journalists across the world, who have examined 13.4m files belonging to professional services firms and offshore corporate registries. The BBC said there was nothing illegal in the investments and no suggestion that the Queen was not paying tax. But it said questions might be asked about whether the monarch should be investing offshore.

News in Brief - 03/11/2017

GBP

In spite of market speculation that the Bank of England would use its interest rate decision yesterday, and accompanying Inflation Report and Press Conference, to paint a bullish picture of the UK economy- in a bid to talk the pound up and stave off the inflationary effects of the weak pound on the UK economy- the reality proved very different. Upon release of the rate decision, inflation report, and meeting minutes, it became clear that the voting members from the Bank remain cautious about the economy’s growth prospects, and sterling immediately sold-off. BoE Governor Mark Carney’s press conference saw further losses, as he emphasised that the Bank would prefer to undershoot interest rate hikes, and potentially have to deal with the economy starting to overheat, rather than risking choking economic growth. Indeed, the Bank’s official forecast only see two more hikes in the next three years. Aside from this, yesterday also saw the release of the Construction Purchasing Managers Index, which showed a mild recovery from last month’s index, although optimism about future business remained dismal. This morning, Services PMI rose to 55.6, reflecting a decent rate of expansion in the sector and an improvement from August’s figures.

EUR

The euro closed marginally higher against the US dollar, and like all major currencies much higher against sterling . Political tensions in Spain remained elevated, as eight members of the Catalan government were taken into custody by the orders of the Spanish court of justice for their collaboration in organising the referendum that later led to the declaration of independence of the Catalan region. Spain issued a European arrest warrant for the Catalan leader Catalan Puidgemont as well, who is currently in Brussels and rumoured to be considering an asylum claim.

USD

The US dollar experienced a rather choppy session as markets tried to decide what to make of the details of the tax bill, released by the Republican party after much political wrangling. On the whole market participants appear to have been far from overwhelmed by the bill and it’s prospects for passage. The other big news coming from the US was the nomination of Jerome Powell by president Trump for the position of Fed chair. He is seen as the status quo candidate that will be much alike his predecessor Janet Yellen, who was perceived to be a cautious dove. This afternoon at 12:30 BST we will see the release of monthly Non-Farm payrolls and the change in Average Hourly Earnings, followed by the non-Manufacturing Purchasing Managers Index at 14:00.

UK News- 03/11/2017

FT: BoE’s Broadbent emphasises need for further rate rises. Ben Broadbent, deputy governor of the Bank of England, sought to reinforce the central bank’s message that it had not gone soft on future rate rises on Friday, saying “we will need a couple more interest rate rises”. Speaking on the BBC Today programme, the deputy governor fought against the financial markets’ impression that Thursday’s rate rise was “dovish”. Sterling fell more than 1 per cent against the dollar and the euro after the decision, when the BoE dropped its previous reference to markets underestimating the need for further interest rate rises. But officials in the central bank, both publicly and privately, said there had been no change in view and the reason that language was not needed was because the financial markets had taken notice of the BoE’s previous comments and finally priced in future interest rate rises.

Reuters: UK services sector grows at fastest rate in six months – IHS Markit/CIPS Britain’s services sector enjoyed a sharp pick-up in growth last month but companies were nervous about Brexit, a closely watched survey showed on Friday, a day after the Bank of England raised interest rates for the first time in a decade. The IHS Markit/CIPS services purchasing managers’ index (PMI) jumped to 55.6 in October from 53.6 in September, its highest level since April and its biggest one-month rise since. August 2016. The reading exceeded all forecasts in a Reuters poll and moved further above the 50 mark that separates growth from contraction. The services survey follows relatively upbeat PMI readings for the smaller manufacturing and construction sectors in October, and taken together they suggest the economy is growing at a quarterly rate of 0.5 percent, IHS Markit said.

News in Brief - 02/11/2017

GBP

Sterling volatility was low yesterday as markets braced for today’s all important Bank of England events. The Markit Manufacturing Purchasing Managers’ Index rose slightly in October, as the surveyed manufacturers reported higher activity and robust order growth. This morning, at 9:30am GMT we see the release of Construction data, however the markets main focus will be the Bank of England’s latest Inflation Report at 12:30pm GMT, alongside a rate decision that is likely to be the first hike in more than a decade. Expectations for the move are overwhelming after months of increasingly explicit messaging from Monetary Policy Committee members, and so the sterling reaction is likely to be driven by how hawkish or dovish the messaging accompanying the hike will be. MPC members including Governor Mark Carney will give a press conference at 13:30.

EUR

The euro traded lower against USD yesterday, but recovered its losses with some sharp appreciation versus the greenback overnight. After a lull yesterday the euro data calendar gets more eventful today. Eurozone Manufacturing PMIs have already been released this morning, with Italian, Spanish and German figures all positive, but French manufacturing below market expectations. The overall reading for the Eurozone was 58.5, with any number above 50.0 representing expansion.

USD

Sold off overnight as firm reports emerged that US President Donald Trump would choose Jerome Powell as the next Federal Reserve Chair, and the Fed itself held rates steady as universally expected at last night’s meeting. Powell is a conventional choice, and already a member of the Fed’s Board of Governors that is perceived as in favour of lighter regulation. Last night’s dollar weakness may have been triggered by an unwinding of expectations that a hawkish or unconventional pick may disrupt the Fed’s current, extremely cautious approach to rate hikes. Political wrangling continued in the legislature over a Republican Party plan for tax cuts, that will supposedly be released today and may be relevant for USD if it is viewed as inflationary. Aside from the potential announcement of tax reform plans. Weekly Unemployment Claims data will be released today at 12:30 GMT, alongside Nonfarm Productivity and Labour Costs data. Fortuitously, Jerome Powell himself will speak at 12:30.

UK News- 02/11/2017

FT: Trump set to name Powell as Fed chair nominee. President expected to make announcement on Thursday confirming choice of central bank head. Jay Powell is expected to be the president’s nominee to serve as the next chair of the Federal Reserve, according to two White House officials, as Donald Trump moves to make his mark on the world’s most powerful central bank. The White House is due to make the announcement on Thursday, ending months of speculation ahead of the end of Janet Yellen’s first term as chair in February. The post of Fed chair is subject to Senate confirmation. Mr Powell has been a serving Fed governor since 2012. A centrist on monetary policy, he is known as a pragmatic and down-to-earth official with private sector and government experience. A trained lawyer and former partner at private equity firm Carlyle, he also served in the Treasury under former president George H.W. Bush in the 1990s.

Reuters: Bank of England set to raise rates for first time since 2007. The Bank of England looks set to raise interest rates for the first time in more than 10 years on Thursday, despite economic growth appearing weaker than before any other increase in borrowing costs in the past 20 years. Almost all economists polled by Reuters expect the BoE to raise base rates to the 0.5 percent they stood at from March 2009 until August last year, when they were halved to 0.25 percent after Britons voted to leave the European Union. Britain’s annual growth is running at its weakest in four years, but with inflation hitting a five-year high of 3.0 percent in September and unemployment at a 42-year low, the central bank is worried the economy could overheat. “The time for beginning to edge up interest rates oh-so-cautiously from a quarter percent to a half percent is pretty nigh,” former BoE deputy governor Rachel Lomax said.

News in Brief - 01/11/2017

GBP

Plenty of political headlines dominated UK news yesterday, but the most significant for sterling was the news that lead EU Brexit Negotiator Michel Barnier was ready to speed up negotiations. Sterling crosses popped higher on the news, which arrived after midday, and extended their gains through the afternoon. The week’s key event remains tomorrow’s Bank of England meeting, and yesterday’s only major release was GfK consumer confidence, which remained negative overall. Today’s main data release will be the Manufacturing Purchasing Managers’ Index at 09:30 GMT, but with tomorrows potentially historic rate announcement looming the release may have a muted impact on sterling.

EUR

The euro had an uneventful day against USD, and weakened further to sterling. The morning’s data releases were a mixed bag, with eurozone Gross Domestic Product growth beating expectations for the second quarter, printing at 0.6%. Estimates of Q1 growth were also revised upwards, to 0.7%. The results underlined the impressive improvement in eurozone economic conditions this year, but inflation data released yesterday showed the lack of effect the growth increase has had in inflation. The Core Consumer Price Index rose just 0.9% year on year, a result typical of the last three years or so, and less than expected. No headline euro data will be released today, with many important economies enjoying All Saints day holidays.

USD

USD traded sideways in a broad sense yesterday, trading weaker against GBP and giving up early gains versus the euro. There were no developments in the week’s two headline political stories of the ongoing probe into the Trump administration’s potential involvement with foreign interference in last year’s elections, and the announcement of the next Federal Reserve Chair. The afternoon’s data included strong prints for the Chicago Purchasing Managers Index, a manufacturing output survey, and the CB Consumer Confidence Index, which spiked sharply in October. Today at 13:15 GMT ADP will release its monthly estimate of Non-Farm payrolls, followed at 15:00 by ISM Manufacturing PMI and Construction Spending. Total Vehicle Sales will also be released throughout the day, providing a partial but timely look at the health of consumer spending. At 19:00 GMT the Federal Reserve’s latest rate decision will be announced, although without a press conference to explain a potential rate hike, the Fed is likely to hold on rates tonight.

UK News- 01/11/2017

FT: US monetary tightening set to endure after Yellen. Fed chair will pass on most benign economic outlook America has seen for a decade. Janet Yellen will on Wednesday chair what may be one of her final meetings at the helm of the US Federal Reserve as the spotlight falls on whether monetary policy will shift after her expected departure. President Donald Trump is expected to nominate a replacement for Ms Yellen this week but the central bank’s slow but determined course towards tighter monetary policy seems set to endure, as Jay Powell, her most likely successor, inherits an established strategy and strengthening recovery. The next Fed chair will nevertheless be forced to face some significant decisions soon after taking the helm, including deciding how to combat the next economic downturn at a time of intense hostility among congressional Republicans to many of its stimulus tools.

Reuters: NIESR expects BoE rates to peak at 2 percent in 2021. Britain’s National Institute of Economic and Social Research said it expects the Bank of England to start a sustained rate-tightening cycle on Thursday, which will lead to interest rates peaking at 2 percent in 2021. NIESR’s forecast is more hawkish than almost all the economists polled by Reuters last week, and comes a day before economists expect the BoE to raise interest rates for the first time in more than a decade. Three months ago, NIESR brought forward its expectation for a first BoE rate rise to February 2018, at a time when most economists still expected the BoE to wait until 2019 before beginning to raise rates. In September the BoE surprised markets by saying most of its policymakers expected to back a rate rise “over the coming months”. BoE Governor Mark Carney said this largely reflected a weaker outlook for productivity – which has stagnated in Britain since the financial crisis and reduced the rate at which Britain’s economy can grow without creating excessive inflation.

 

News in Brief - 30/10/2017

GBP

Sterling opens the week stronger against most of the G10 FX as markets await the Bank of England’s decision on Thursday. Expectations for a rate hike remain well above 80% and questions now turn into the features of the hike itself. If the BoE delivers a dovish hike, which would be a hike with five votes in favour and four against, sterling could actually fall after the hike. This would be due to some of the hawkish members supporting a one-off hike, rather than the beginning of a hiking cycle. If the BoE delivers a hawkish hike, with more than five members favouring a hike, or even signalling more hikes in the future, then sterling would react positively. Obviously, if at the end no hike is delivered, sterling would take a massive hit, although we still believe this is very unlikely since the latest research published by the BoE shows that the depreciation of sterling after Brexit will push inflation up for much longer than initially anticipated, which could discourage the BoE to see sterling weakness again.

EUR

The euro is also strong against most of the G10 currencies, with the exception of the Swedish krona and sterling, as markets return to normal, after the Catalan crisis in Spain was largely resolved over the weekend. The Spanish government implemented Article 155, which gives them the power to dissolve the regional Catalan government, and have also scheduled new elections in Catalonia on December 21st. The established parties in in the region will now have to decide whether to disregard the new elections having been called by a “foreign” government, or participate in them, which would legitimise the actions of the Spanish government so far, and be seen as an acceptance of the defeat of their recently declared independence.

USD

The dollar is lower today since it appears that Donald Trump is leaning towards Jay Powell on the Federal Reserve Chair dilemma. Powell is the least hawkish of the two possible candidates, and appears to be less keen on deregulation than Taylor, too. Trump will announce his final decision before the end of the week. The Federal Reserve meets later this week but, before that, core personal consumption expenditure and personal spending data will be released today at 13.30 BST.

UK News- 30/10/2017

FT: Philip Hammond ‘between a rock and a hard place’ in Budget. IFS says chancellor is under pressure to abandon fiscal targets. Philip Hammond is stuck “between a rock and a hard place” as he prepares his first autumn Budget, facing the prospect of either abandoning his fiscal targets or ignoring growing demands for more public spending, according to the Institute for Fiscal Studies. In a new report published on Monday, researchers at the think-tank set out the challenges for the chancellor as the outlook for the economy weakens. Despite the government’s existing plans to continue squeezing public spending over the next four years, lower productivity growth is expected to push up forecasts for public borrowing. That poses a dilemma for Mr Hammond, who would struggle to balance the needs of the economy and strains on public services with his desire to cut government borrowing and debt.

FT: Powell leading in Trump’s Fed chair reality-TV spectacle. Serving governor would be continuity candidate but president keeps his audience on tenterhooks. Donald Trump is preparing an announcement on the next Federal Reserve chair this week with governor Jay Powell said by administration officials to be the leading candidate in what remains an unpredictable process. The US president teased the decision on Instagram on Friday, claiming that Americans were “anxiously” awaiting his announcement and that everybody would be “very impressed” with the nominee. “It will be a person who hopefully will do a fantastic job,” he said, speaking directly into the camera from the White House. Mr Trump has been deliberating between Mr Powell, the continuity candidate for the job alongside current chair Janet Yellen, and John Taylor, a Stanford economist who could radically shake up monetary policy. Mr Powell, who has served at the central bank since 2012, is a centrist who has strongly supported Ms Yellen’s cautious approach to interest rate rises as well as the gradual reduction of its $4.5tn asset holdings which began this month.

Reuters: Catalan crisis – a tough day at the office. Rarely has there been so much world interest on public sector workers turning up for their nine-to-five jobs. The behaviour of Catalonia’s 200,000 civil servants this morning is the latest test of where the region’s stand-off with Madrid is heading. The main group behind the pro-independence campaign has called for a campaign of civil disobedience and all eyes are on whether those in the public sector actually turn up and, if they do, whether they carry out their jobs as usual. The other potential flashpoint is the offices of pro-independence government officials and lawmakers, where the question is whether they try to gain access and whether the Catalan police, the Mossos d‘Esquadra, follow orders from Madrid to prevent them. Financial markets have their eye on a slightly longer-term game: they are up this morning after a weekend poll suggested Catalan secessionists could lose their majority in a new regional election now scheduled for December.

News in Brief - 27/10/2017

GBP

Sterling remained out of the spotlight yesterday, as markets were focused on developments elsewhere. Nonetheless, sterling is downbeat today as Brexit negotiations talks in the UK are not showing signs of improvement, and broad inflation keeps biting real wages. No data will be released today in the UK, thus the pound’s movements are likely to be led by sentiment on other currencies.

EUR

EURUSD has finally broken beyond the low of the last three months, as markets digested the European Central Banks announcement yesterday that they would actually increase the overall size of its monetary policy easing programme in the Eurozone. Although the ECB met markets expectations regarding the size of reduction of assets purchased per month, the extension of the termination date of the programme from March 2018 to September 2018 increases the overall spending commitments from €180bn to €270bn. Furthermore, the ECB also left the door open for further extensions of size and duration should the economy worsen in the euro area next year. The overall message was that the ECB are far less confident in the eurozones economic recovery than markets had assumed, and as a result, the euro is on the back foot against almost all major crosses this morning.

USD

The dollar continues to strengthen against all other G10 crosses, as the US tax cut programme moved one step closer, giving markets confidence that the US economy is set for a medium term boost. Tech stocks in the US also moved sharply higher, after earnings sessions showed profits and sales beating expectations massively. This attracts flows to the US. Gross Domestic Product data will be released today at 13.30 BST. Markets expect a 2.6% reading in Q3, which would yet signal a further acceleration of economic growth in the US.

UK News- 27/10/2017

FT: Sturgeon calls on May to clarify Brexit transition deal Businesses making plans that will be ‘deeply damaging’ for Scotland’s economy. Nicola Sturgeon has demanded that Theresa May urgently clarify her plans for a Brexit transition deal, saying she is deeply concerned that businesses will soon start implementing contingency plans that would be “deeply damaging” for the Scottish economy. In an interview with the Financial Times, Scotland’s first minister said she was sending a letter to Mrs May asking whether the UK government was working to secure a transition deal maintaining current EU rules for at least two years by the end of the year. Ms Sturgeon has long opposed Britain leaving the EU, but she insisted that her intervention was not an attempt to obstruct Brexit. She said she was motivated to write the letter after hearing directly and indirectly of numerous companies who say they will need to act soon to mitigate Brexit-related risks.

FT: ECB’s slow retreat from QE buoys risk appetite. Central bank remains dovish as it struggles to hit inflation target while scaling back stimulus. At the very end of 2015, the European Central Bank clarified a seemingly mundane detail about the historic bond-buying programme it had begun earlier that year: the central bank would reinvest proceeds from maturing bonds. At the time, there was “basically no reaction”, president Mario Draghi recalled on Thursday that it was considered to be totally marginal. On Thursday, that detail was far from marginal. With the ECB having hovered up over €2tn of bonds under QE, its reinvestments of maturing debt — which Mr Draghi drew attention to at his press conference — will amount to hundreds of billions of euros over coming years and underlined just how entrenched asset purchases have become for the continent’s financial markets. “The fact that the ECB will continue to reinvest proceeds for some time after QE ends adds to the dovish read and in turn should be supportive for risk assets,” said Charlie Diebel, head of rates at Aviva Investors.

Market Watch: European stocks climb as ECB delivers open-ended tapering of bond purchases. ‘Dove camp is the clear winner’ at the ECB as Draghi says QE won’t suddenly stop, says Monex analyst. The ECB said it would reduce its monthly bond purchases by half to €30 billion starting in January, and extend the quantitative-easing program to at least September 2018. The reduction was anticipated as the eurozone economy continues to recover, but the bank is still dealing with stubbornly low inflation. ECB President Mario Draghi said during his news conference the decision reflects an “open-ended” program that won’t stop suddenly.“It turns out the dove camp is the clear winner here in the sense that they got the flexible or open-end of the QE program. That is why the euro is falling and equity markets are reacting so positively,” said Manuel Ortiz-Olave, FX market analyst at Monex Europe.

News in Brief - 26/10/2017

GBP

Sterling had a rampant day yesterday after Gross Domestic Product numbers came in above expectation, more or less setting the Bank of England November rate hike in stone. The services sector lead the economic growth, helped especially by strong outputs in computer programming, motor trades and retail trades. At the moment most market participants expect that the November rate hike will be a one-off event, but it does give the BoE just a little bit more breathing room to at least consider a new hiking cycle without damaging the economy too much. They actually might need to, since their newest research released on Monday showed the weak sterling may have a stronger inflationary influence for longer than previously expected.

EUR

The euro appears to be immune to the Eurozone’s ongoing political issues, but also to positive data elsewhere. It is taper time in the euro area and the entire market is focused on today’s European Central Bank meeting, where Draghi is expected to announce a revision to the Eurozone’s monetary policy. According to Bloomberg, consensus suggests a cut to €30 billion a month (from €60 billion currently), but for the programme to keep running to September next year rather than ending in March, as is the current plan. There are quite a few variables to be considered and it is expected a volatile reaction of the euro after the announcement as market participants assess the ultimate impact of the decision. The decision is announced at 12.45 BST, and Mario Draghi will speak at 13.30 BST.

USD

The dollar continues to strengthen as the race for the Federal Reserve Chair is heating up. Donald Trump said yesterday that Gary Cohn has no chance. Jerome Powell is therefore the frontrunner, followed by John Taylor and Janet Yellen. Trump also said he “likes a lot” Yellen. With regard to macro data, there were a few impressive releases. Core durable goods orders increased 0.7%, the fastest monthly increase since November 2016. New home sales jumped an amazing 19%, rebounding from the hurricane-slump and show the highest growth since 2007.

UK News- 26/10/2017

Reuters: UK retailers cut jobs at fastest rate since 2008.  British retailers cut jobs over the past three months at the fastest rate since comparable records began in 2008, due to technological change and rising employment costs, the British Retail Consortium said on Thursday. The BRC, which represents major retailers, said its members employed 3.0 percent fewer staff in the third quarter of this year than during the same time in 2016, and total hours worked fell by 4.2 percent year-on-year. Both were the steepest falls since the BRC started collecting records in 2008, when Britain was in the middle of its sharpest recession in decades. This contrasts with the picture in the broader economy, where the unemployment rate is its lowest since 1975 and job creation has been strong, albeit partly at the expense of wages.

 

News in Brief - 25/10/2017

GBP

Sterling fell yesterday after comments from Jon Cunliffe, member of the Bank of England’s Monetary Policy Committee, pointed towards cautiousness with regard to interest rate hikes in the UK. However, the UK’s GDP figures released a few minutes ago, showed the UK’s economy growing above expectations in Q3. Therefore, economic growth concerns at the Bank of England should ease now, whilst inflation concerns are increasing. A recent research report from the central bank, published earlier this week, showed that the drop in the pound after Brexit could lift inflation significantly above target for much longer than the initial estimates pointed out. As a result, the case for an interest rate hike is now stronger than ever.

EUR

The euro remains resilient to political concerns in the euro area. Markets are focused on the ECB’s most important meeting of the year tomorrow, when the Governing Council is expected to announce a “recalibration” of the QE programme. There are many question marks to be answered tomorrow, but the key one will be the extent to which the Eurozone’s economy has recovered, from the ECB’s point of view. The best case scenario markets are pricing in is a reduction of the total assets purchased a month from €60 billion to €40 billion. Therefore, the reaction in the euro will depend on how the ECB’s decision diverts from current consensus.

USD

The USD maintains its upward trend as the chances of a hawkish Federal Reserve Chair are increasing. Donald Trump is asking senate republicans who should be the next chair, and the name of John Taylor appears to be resonating persuasively. John Taylor is a well-known economist and academic famous for his Taylor rule research, which can be used as a guide for interest rate decision making and which currently suggest the US should have rates above 2.5%. As a result, US bond yields continue to sell off as expectations build up for a hawkish Fed chair.

UK News- 25/10/2017

FT: UK GDP growth picks up in Q3. The UK economy expanded by 0.4 per cent in the third quarter of this year, new early estimates from the Office for National Statistics show, a shade above the previous quarter’s reading and also ahead of forecasts. The result brings the year-on-year growth rate to 1.5 per cent, in line with the previous quarter and also a nose ahead of forecasts. It will likely embolden the Bank of England to raise interest rates next month. The ONS pointed out that service sector growth remained 0.4 per cent in the quarter. while manufacturing grew by 1 per cent, bouncing back from a weak second quarter of the year. “Construction has contracted for the second quarter in a row, although the industry still remains well above its pre-downturn peak,” the ONS said.

Reuters: UK economy picks up speed in third quarter, puts BoE rate hike firmly on track. Britain’s economy picked up speed unexpectedly in the third quarter, according to figures on Wednesday that likely cement expectations that the Bank of England will raise interest rates next month. Quarterly gross domestic product growth rose to 0.4 percent compared with 0.3 percent growth in the three months to June 2017, the Office for National Statistics said. A Reuters poll of economists had pointed to growth of 0.3 percent. The vast services industry was behind the bulk of Britain’s economic expansion in the third quarter, but manufacturing also contributed, helped by a rebound in car production. The BoE is widely expected to return rates to 0.50 percent from 0.25 percent on Nov. 2 after its next meeting, due to concerns that the economy cannot grow as fast as it used to without generating excess inflation.

FT: Toyota urges UK to lift ‘fog’ on Brexit negotiations. Carmaker warns curbed Europe access could prompt it to reconsider its Burnaston plant. Toyota has urged the UK government to lift the “fog” around Brexit negotiations, to safeguard the competitiveness of the Japanese carmaker’s factories in the country. The drawn-out process surrounding the UK’s plan to leave the EU was creating “a lot of uncertainty”, said Didier Leroy, executive vice-president at Toyota, warning that an inability to secure free access to the European market could prompt the carmaker to reconsider the future of its Burnaston plant in the UK. “Today they [Burnaston] export 80-85 per cent of their production to continental Europe, so if we move to something like an import tax, trade tax or any kind of additional penalty, it will create a big negative impact in terms of competitiveness for this plant,” he told reporters at the Tokyo Motor Show on Wednesday.

News in Brief - 24/10/2017

GBP

Sterling lost traction overnight as attention diverts elsewhere. In the meanwhile, the UK awaits more details from the EU in relation to the second stage of the Brexit negotiations which will include discussions about a trade deal and a transitional arrangement. Elsewhere, the Bank of England published a new piece of research yesterday, reflecting increasing concerns about the future of inflation in the UK. According to the study, the pass-through effect of sterling’s depreciation into domestic prices has been much more severe than initial models forecasted, and could last years rather than quarters. The probability of a hike in November are high, as markets foresee five members of the Monetary Policy Committee—out of nine—voting for a rate hike. We still expect a hike next month.

EUR

The single currency held firm despite the Catalonian crisis. Catalan separatists will meet on Thursday in order to discuss the answer to the central government’s decision to supress Catalonia’s autonomy. However, Carles Puigdemont is thinking about going to Madrid himself to speak in front of the upper chamber of the Senate in order to plead against the implementation of Article 155, which allows the central government to supress a regional autonomy. The likelihood of Puigdemont coming to Madrid could be a starting point for a debate, although this is still far from certain. The Eurozone’s manufacturing Purchasing Managers Index jumped again in October reflecting the strength of the sector in the region, reaching 58.6, its highest reading since February 2011.

USD

Since yesterday, the dollar has slipped against most major currencies. House and Senate leaders have an ambitious schedule for drafting and releasing their tax legislation. Representative Mark Meadows said he’s been promised that the House Ways and Means Committee will release its plan about seven days after Thursday’s vote on a budget resolution. President Trump said he’s “very, very close” to naming his nominee for Fed chair. The decision may have large implications for the dollar over the next few quarters depending on the inclination—hawkish or dovish—of the chosen Fed Chair.

UK News- 24/10/2017

FT: Bank of England blog indicates mounting concern over inflation. Research on currency depreciations boosts case for interest rate rise. Above-target inflation and a squeeze on living standards are likely to be features of the British economy for years to come following sterling’s sharp depreciation since the Brexit vote, according to a blog by Bank of England staff published ahead of next week’s monetary policy meeting. The staff research suggests that currency depreciations in practice have almost double the effect on raising prices than the central bank’s main models predict, even if there is no pass through to wages and domestic costs. The research, published on the BoE’s Bank Underground blog, will give more ammunition to the hawks on the Monetary Policy Committee, who want to increase interest rates to keep the inflation forecast close to the 2 per cent target in two to three years’ time.

FT: Tusk warns May future of Brexit is up to UK. One of the EU’s most senior politicians has warned Theresa May that the ultimate outcome of Brexit is for Britain to decide, not Brussels, after the British prime minister told her parliament she was waiting for the EU to decide the future relationship. Donald Tusk, who chaired last week’s EU summit as European Council president, raised the pressure on Mrs May, who has been buffeted by infighting within her own party over Brexit’s ultimate outcome, by saying it was her government’s responsibility to decide how negotiations would proceed. “This is in fact up to London how this will end: with a good deal, no deal, or no Brexit,” Mr Tusk told the European Parliament in a post-summit report.

News in Brief - 23/10/2017

GBP

The preliminary reading of the third quarter Gross Domestic Product for the UK will be announced on Wednesday. If this meets the expectations of the Bank of England at 0.3%, then a rate hike in 2017 will be as good as set in stone. Disappointing recent data however indicate that some risks to the downside are present, which would spoil the party for the BoE and instead would serve them a bitter cocktail of doubts. Not all is gloom and doom for the British isles though. German chancellor Angela Merkel and President of the European Commission Donald Tusk spoke encouraging words on the progress of the Brexit negotiations on the summit of European leaders last week.

EUR

The euro weakened slightly over the weekend due to the rising political tensions across the continent, with the prosperous Italian regions of Lombardy and Veneto claiming victory this weekend in non-binding referendums in favour of more autonomy. Elsewhere the Catalan parliament is planned to meet at 10:30am GMT to discuss the recent intentions of Madrid to activate Article 155, which would strip the regional government of its power. The Spanish government would shape the execution of this article by suspending the parliament, taking over the police force and the public media. The continued unrest has already led the Spanish government to cut their own growth forecast.

USD

The USD enjoyed an excellent week on the back of rumours of John Taylor as a potential new hawkish Fed chair, which was topped off by news on Friday that a new budget made it passed the Senate. This budget clears one more hurdle towards a tax reform that will in likelihood provide a fiscal stimulus for the US economy on the short run. In a tight labour market such as the US is experiencing right now, a fiscal stimulus would be inflationary as well, giving renewed hope to forecasters who had optimistically been predicting a continued steady rise in interest rates in the US next year.

UK News- 23/10/2017

FT: Juncker and May allies clash publicly over private dinner account. Ex-aide Timothy blames Selmayr for leak of pre-summit meeting to German newspaper. Top allies to Jean-Claude Juncker and Theresa May have engaged in a public clash over an account of a private Brussels dinner between the two leaders that portrayed the British prime minister as despondent over Brexit fights at home and begging for help from the EU. Nick Timothy, Mrs May’s former co-chief of staff, accused the European Commission president’s powerful chief of staff, Martin Selmayr, of leaking details of last week’s meeting to a German newspaper, saying it was symptomatic of EU efforts to derail Brexit negotiations.

Reuters: Now talk nice – EU script to help May settle Brexit bill. Diplomatic theatrics at last week’s Brussels summit revealed how European Union leaders will coax British Prime Minister Theresa May over the next two months into parting with tens of billions of euros in return for a post-Brexit trade deal. May gave away nothing hardliners in her Conservative cabinet can beat her with. She stuck to earlier vague concessions about honouring commitments and insisting a “Brexit bill”, which the EU reckons at around 60 billion euros ($70 billion), must be part of a package deal on what Britain’s relationship with the EU will be once it leaves in March 2019. Sticking to their own script, the other 27 states gave May until the next regular summit in eight weeks to improve an offer officials estimate at about 20 billion euros if she wants them to start discussing future trade ties. Miss that deadline and, the EU says, time will be running out for any deal.

BBC: Brexit: Business leaders call for swift transition deal. Britain’s five biggest business lobby groups are calling for an urgent Brexit transition deal, or they warn the UK risks losing jobs and investment. In a joint letter being sent to Brexit Secretary David Davis, the groups, including the Institute of Directors and CBI, will say time is running out. Sources told the BBC the letter is still in draft form, but will be sent in the next day or two. A government spokesman said the talks were “making real, tangible progress”. The other lobby groups backing the letter are the British Chambers of Commerce, the Federation of Small Businesses, and the EEF manufacturing body. Together they represent companies employing millions of workers.

News in Brief - 18/10/2017

GBP

Sterling fell yesterday as retail sales data dramatically missed estimates. The retail sales index showed what inflation has been telling markets over the last few quarters: volumes of goods purchased are falling rapidly, although the amount of pound spent is actually increasing in a year-on-year basis. Therefore, the Bank of England now faces a huge dilemma. The BoE has to decide whether hiking rates, which would help controlling inflation although it might ease consume demand; or keep rates on hold, risking inflation overshooting estimates but boosting demand. It appears that the first alternative is the best choice, since at least one consequence offsets the other, whereas keeping rates on hold is proving to be detrimental for the UK economy. Elsewhere, Theresa May successfully begged the European Union leaders not to push her too far. Her words were designed to tame Germany’s Chancellor Angela Merkel who said “there will be a good outcome” to talks.

EUR

The euro dodged the Catalonia leader Carles Puigdemont’s gambit yesterday, who not only failed to clarify whether he had declared independence or not, but backed himself saying the Catalonian referendum gives him the authority to do so. He also said that the independence will be declared if Article 155 was triggered. Markets are now awaiting the decision from the Spanish national government, with leader Mariano Rajoy’s government is finishing the details to go ahead and suppress Catalonia’s autonomy. The German producer price index increased above expectations earlier today to 0.3% month-on-month vs 0.1% expected.

USD

The dollar has strengthened against most of the G10 currencies this week, with the exception of the loonie, at the time of writing. Optimism in the manufacturing sector remains buoyant after the Philly Fed manufacturing index posted a reading of 27.9 versus 21.9 expected, its highest reading since May. Existing home sales data will be released today at 15.00 BST and, importantly, Federal Reserve Chair Janet Yellen gives a speech titled “Monetary Policy Since the Financial Crisis” tomorrow, whilst markets are closed. Questions from the audience are expected, which could lead to a volatile opening on Monday’s trading session.

UK News- 20/10/2017

FT. Theresa May asks EU not to back her into corner on Brexit. PM seeks green light for transition talks but bloc expected to say progress not sufficient. Theresa May has implored European leaders not to back her into a corner on Brexit, saying that there was a “clear and urgent” need to move exit talks to the next phase as her Eurosceptic critics began to mobilise. The UK prime minister on Thursday night told EU leaders that she had taken a big risk by making an opening €20bn financial offer and accepting that a transition deal would be on the EU’s terms, including budget contributions and European Court jurisdiction. The conciliatory tone received a response in kind from Angela Merkel, the German chancellor, who called for patience and stressed her certainty that “there will be a good outcome” to talks.

Reuters. Merkel sends positive signal to May on Brexit. talks German Chancellor Angela Merkel, in a markedly positive response on Friday to an EU summit appeal by Prime Minister Theresa May for help with Brexit, said talks with Britain were moving forward and were unlikely to break down. Merkel made her comments at the end of the first day of a European Union summit and after May had appealed to her fellow leaders to help her silence critics at home and break a deadlock in the talks. “In contrast to how it is portrayed in the British press, my impression is that these talks are moving forward step by step,” Merkel told a late-night news conference, dismissing as “absurd” suggestions in Britain that the talks should be broken off. “I have absolutely no doubts that if we are all focussed … that we can get a good result. From my side there are no indications at all that we won’t succeed,” she said.

News in Brief - 19/10/2017

GBP

Sterling weakened yesterday after the labour market figures showed that real salaries in the UK contracted for the sixth month in a row. The gloom remains this morning for sterling after an awful Retail Sales report triggered a fresh wave of sterling selling. Aside from macro data, Theresa May will meet the EU leaders today aiming to finally move ahead with the Brexit negotiations to discuss the transition agreement. However, the EU leaders will tell May that not enough progress has been done as a tough Franco-German line of negotiations is set to demand an increase in the contribution to the EU budget from 2021 to 2023. The retail sales figures will be released at 09.30 BST.

EUR

The Catalonian crisis appears to precipitate towards the most disruptive end. Catalonian President Carles Puigdemont had to answer the Spanish central government before 9.00 BST today to confirm whether he had declared independence or not. Prime Minister’s Rajoy cabinet said earlier this week that Article 155—which allows the central government to suppress the autonomy of the region—would not be triggered if Puigdemont called snap elections. The Catalan President’s answer indicates that the referendum’s result gives him the authority to declare the independence unilaterally, and that he would do so if the government invokes Article 155. Spanish media informs that Rajoy’s government is going to proceed with the suspension of the Catalan autonomy.

USD

The dollar remains out of the spotlight somehow but maintains its upward trend supported by the likelihood of John Taylor been nominated as the Fed’s Chair before the month end. It appears that the decision will be divided between Jerome Powell, perceived as a more “dovish” figure among the Fed’s officials, and Taylor, who is a hawkish candidate. Therefore, investors will be watching closely any headline related to the final decision, as the implications for USD crosses in the future is extremely significant.

UK News- 19/10/2017

FT. Spain ready to impose direct rule on Catalonia Process to begin unless region’s president Carles Puigdemont renounces secession plans. The Spanish government appeared set to begin the process of taking direct control over Catalonia on Thursday as Catalan president Carles Puigdemont declined to renounce the region’s claims to independence. Mr Puigdemont on Thursday sent a letter to Spanish prime minister Mariano Rajoy refusing to back down and threatening a formal declaration of independence by the regional parliament if the Spanish government suspends Catalonia’s autonomy. The letter was made public shortly before a 10am deadline set by Madrid. Deputy prime minister Soraya Sáenz de Santamaria had on Wednesday reiterated that the government would begin triggering Article 155 of the Spanish constitution, which allows them to take power over the regional administration unless Mr Puigdemont backed down.

Reuters. Trying to unlock Brexit, May to make offer on EU citizens. British Prime Minister Theresa May will promise on Thursday to make it as easy as possible for European Union citizens living in Britain to stay after Brexit, trying to unlock stalled talks that have spurred calls for her to walk away. Weakened by losing her Conservative Party’s majority in a June election and failing to rally support at an ill-fated party conference, May had initially hoped she would regain some ground by persuading EU leaders at a two-day summit starting on Thursday to let Brexit talks move beyond matters of the divorce. But EU leaders have ruled that out, saying London must agree to pay more as part of an exit settlement than May has said is acceptable. So she will instead try to change the focus, by offering more concessions for those EU citizens increasingly anxious about their rights in Britain after it leaves the bloc. This is unlikely to alter the outcome of the Brussels summit. Continental leaders have been assuming for weeks that a deal can be struck on this issue. But it indicates British officials are pursuing a new course – adopting a softer approach to try to win over the bloc’s negotiators, if not all its governments.

BBC. Spain to suspend Catalonia’s autonomy. Spain is to start suspending Catalonia’s autonomy on Saturday, after its leader threatened to declare independence. The prime minister’s office said the cabinet would meet to activate Article 155 of the constitution, allowing it to take over running of the region. Catalan leader Carles Puigdemont said earlier the region’s parliament would vote on independence if Spain “continues repression”. Some fear the moves could spark unrest.

News in Brief - 18/10/2017

GBP

The big news from the UK yesterday was a Consumer Price index report, showing that inflation has now reached its highest point in five and a half years, at 3%. Despite the reading being at such a historically high level, markets had speculated that the number could be even higher, which drove sterling higher before the release. Given that the 3% reading that transpired was in line with the average market forecast, sterling subsequently retraced some of these gains after the release. This bout of sterling selling accelerated later in the day after dovish remarks from the Bank of England’s Sir David Ramsden, who stated that he was not intending to vote in favour of a rate hike in the next BoE meeting. Today at 9:30 BST the UK unemployment and Average Weekly Earnings data will be made public. The Average Weekly Earnings will be particularly closely watched by markets, as it continues to lag behind inflation levels, meaning British workers have been losing money in real terms. This has an impact on longer term Consumer Spending levels, which had been a key drive of the UK’s economic performance over the past two years, thus sterling is susceptible to another bout of selling should the number be disappointing.

EUR

The euro edged slightly lower against the dollar for the fourth day of trading in a row yesterday. The latest justification for the market selling of the euro stemmed from an underwhelming final Consumer Price Index reading for the Eurozone, which showed annualised inflation at 1.5%, demonstrating that the European Central Bank is still far remote from achieving its 2% inflation target. The German ZEW economic sentiment also disappointed. Although a reading above 0.0 indicates optimism, the 26.7 number was below both last month’s reading of 31.7, and the forecast figure of 34.2. Aside from the economic data points, markets are still fervently speculating on how and when the ECB’s Quantitative Easing programme will end. Our expectation is that the ECB will begin by tapering the monthly amount of purchased assets from €60bn to €20bn, but keep the program running until the end of 2018. Tonight the European Council meeting will start in Brussels. In this EU summit European leaders gather to discuss a wide array of topics ranging from migration to Brexit.

USD

USD was rampant yesterday, being up against most of the G10 currencies. This dollar march was captained by rumours that Trump would appoint John Taylor, who is perceived to be a hawkish option, as the new Fed chair. Meanwhile Industrial Production and Capacity Utilization data points disappointed slightly, but the NAHB index of homebuilders showed a nice uptick after the hurricanes, reaching a five month high. Meanwhile United States Trade Representative Robert Lighthizer continues to take aim at both Mexico and Canada over the North American Free Trade Agreement, urging them “to give up a little bit of candy”. This afternoon at 13:30 BST the September Housing Starts and Building Permits will be released.

UK News- 18/10/2017

Reuters. Bank of England still faces growth-inflation trade-off – Carney Bank of England Governor Mark Carney said on Tuesday the central bank still had to balance the need to support job creation and growth with an inflation rate that is running above its target. “Inflation rising potentially above the 3 percent level in coming months is something that we have anticipated,” Carney told MPs in parliament, saying the Bank had said before last year’s Brexit vote that a fall in sterling would push up prices. “As a consequence we faced a trade-off, and we still face a trade-off, between having inflation above target and the need to support, or the desirability of supporting, jobs and activity.” The Bank has said most of its rate-setters think they will need to raise interest rates “in the coming months” to head off a build-up of inflation pressure. Carney has previously said he is part of that majority.

News in Brief - 17/10/2017

GBP

Sterling has been trading sideways this week so far, as it faces a critical week ahead in terms of data. Inflation figures will be released today, and expectations are for a 3% increase year-on-year. Should expectations be met, the Bank of England’s Governor Mark Carney would have to send a letter to the Chancellor of Exchequer, explaining why inflation has overshot the central bank’s targets. This highlights the importance of today’s data. We believe that if inflation meets expectations, an interest rate hike by the BOE next month is practically confirmed. The inflation figures will be released at 09.30 BST.

EUR

The euro is losing ground against most of the G10 FX this week. EURUSD will face today strong support levels if the trend continues, and GBPEUR trades near October’s highs. The results of the Austrian elections on Sunday, and the results of the German elections a few weeks ago, are bringing ghosts of the past as populist and nationalist far right parties are strengthening in the EU, something that seemed unlikely after Macron won the French elections against Le Pen back in April. The unity of the European Union is again under pressure, and the euro is suffering as a consequence. The German ZEW Economic Sentiment will be released at 10.00 BST.

USD

The dollar keeps the strength seen on Monday as Fed’s Chair Yellen said on Sunday that any weakness on the inflation readings is likely to be transitory, hinting towards an interest rate hike before the year end. Yellen’s word were boosted yesterday by the result of the Empire State manufacturing index, which showed yesterday its best reading since 2010, highlighting the strength of the manufacturing sector at the moment. The optimism in the sector across the boars begins to lay down the foundation for a strong gross domestic product reading in the fourth quarter. Various minor data releases will be released today, including the industrial production index at 14.15 BST.

UK News- 17/10/2017

Reuters. May, Juncker call for faster Brexit talks. British Prime Minister Theresa May and European Commission chief Jean-Claude Juncker agreed over dinner in Brussels on Monday that the pace of negotiations over Britain’s departure from the European Union should be stepped up. Britain’s Prime Minister Theresa May is greeted by European Commission President Jean-Claude Juncker while leaving the European Commission headquarters after a meeting in Brussels, Belgium October 16, 2017. A joint statement described a “constructive and friendly” two-hour meeting, during which they “reviewed the progress made in the Article 50 negotiations so far and agreed that these efforts should accelerate over the months to come”.

FT. City of London warns of need for quick Brexit transition deal. ‘Transition deal is of diminishing value,’ says TheCityUK lobby group. The City of London has warned that banks and other financial groups will start moving their activities away from London unless the UK can strike a deal for a post-Brexit transition period with the EU by the end of March next year. As Theresa May met Jean Claude Juncker, the EU Commission president, in an apparent attempt to revive the stalled Brexit negotiations, TheCityUK, the main lobby group for financial services companies, warned that it was critical for the financial and professional services industries to have “urgent clarity” on transitional arrangements. “A transitional deal is of diminishing value,” said Kerstin Mathias, head of policy at the lobby group. “The longer it takes to secure, the less beneficial it is.”

News in Brief - 16/10/2017

GBP

The European Commission President Donald Tusk sent a draft last week to the EU 27 states indicating that free trade talks could begin as soon as December if the negotiations had moved forward enough in terms of the Brexit divorce bill and EU citizen rights. However, the German Chancellor’s spokesperson quickly denied this; France and Germany asked for the draft to be amended to avoid giving the impression the EU would accept the beginning of the transition negotiations as soon as enough progress has been made with the UK. Keeping the spirit of Tusk’s comments alive could well be the main goal of Theresa May, who went to Brussels this weekend personally to help to drag the Brexit negotiations out of the mud. This week is all about sterling with the release of inflation figures tomorrow, average earnings on Wednesday and retail sales on Thursday, all critical for the Bank of England and the future of interest rates.

EUR

The government in Madrid has set an ultimatum to the Catalan government to make clear whether they did, or did not declare independence. If Catalonia remains ambiguous on the point, or flat out states they indeed declared independence, Article 155 will be triggered, which will suspend the autonomy of the Catalan region. The Catalan president Puigdemont remains vague on the issue. He stated: ”I have a mandate to declare independence”, but without making clear whether he really did, or did not, declare independence. Elsewhere in Europe, the centre right FPÖ appears to have won the election in Austria, according to the first results coming in. The FPÖ is led by the 31-year old foreign minister Sebastian Kurz, who led the party to victory with a pro-European, but anti-immigration message. The developments in Austria and Catalonia and the re-emergence of nationalistic sentiments within Europe will surely be a talking point in the hallways of the European Council meeting that starts on Wednesday. In this summit European leaders gather and discuss recent broad developments in Europe. The Eurozone Trade Balance will be released at 10:00 this morning.

USD

In another episode of weekend turmoil, Donald Trump announced on Friday that he no longer certifies the Iran nuclear deal, officially known as the Joint Comprehensive Plan of Action. Responses condemning Trump’s comments followed from a variety of sources, from within his own party, to the head of the UN, European leaders, and even the Russian Ministry of Foreign Affairs. The general tone of the criticism of Trump was that this deal is better than no deal, and that Trump risks the safety and stability of all the parties involved by his unilateral action. Elsewhere, economic data showed a slightly lower than expected Consumer Price Index on Friday, providing some doubts about the level of inflation in the US, which weighed on the dollar. This weakness has been reversed by comments from Fed Chair Janet Yellen, however, who this weekend once again repeated her favourite mantra- that inflation has been temporarily repressed, but is likely to spike up again in the coming months. Today the Empire State Manufacturing Index will appear at 14:30 BST.

UK News- 16/10/2017

FT. May urges Merkel to end stand-off over Brexit. PM phones German leader in push to break impasse ahead of EU summit in Brussels. Theresa May has personally urged Angela Merkel to end the Brexit stand-off at this week’s EU summit in Brussels after Berlin and Paris led moves to toughen the EU’s negotiating line in the next phase of talks. France and Germany have pushed for changes to a draft paper prepared for Thursday’s summit to avoid giving the impression that the EU will agree guidelines on a transition period as soon as “sufficient progress” has been made in addressing divorce issues such as the exit bill, according to top diplomats. The British prime minister called her German counterpart on Sunday in an attempt to break the impasse ahead of the high-profile summit, with UK officials arguing that negotiations could not progress unless they move beyond the current talks on a divorce settlement.

Reuters. Johnson says as May heads to Brussels: time to begin serious Brexit talks. Britain’s Foreign Secretary Boris Johnson said it was time to begin “serious negotiations” on Brexit, hours before Prime Minister Theresa May visits Brussels in an attempt to unlock the stalled talks. “We think in the UK that it is time to get on with these negotiations … for us to start some serious conversations about the future and the new relationship, the deep and special partnership we hope to construct,” Johnson told reporters. “I think we will work very much in the interests of both sides … let’s put a tiger in the tank, let’s get these negotiations going and stop letting the grass grow under our feet. We hope very much that our friends and partners will take that message and really begin to do some serious negotiations.” Johnson, arriving for talks in Luxembourg with his European Union peers on Monday, also said London made a “very good” and “fair” offer on safeguarding expatriates’ rights after Britain leaves the European Union.

News in Brief - 13/10/2017

GBP

It was an extremely volatile session for sterling yesterday, which fell sharply early in the morning after news emerged that the EU’s Brexit Chief negotiator said negotiations were in a deadlock on basic issues such as the divorce bill and EU citizens’ rights. However, the currency rallied steeply later in the day as the EU announced that it will begin to discuss trade negotiations with the UK. Donald Tusk sent a draft to the 27 states of the EU saying that free trade talks could open in December, depending on the Prime Minister’s offer of what the UK pays when it leaves the union. No data is expected today, but recent momentum could continue to send sterling higher.

EUR

The single currency retreated yesterday from this week’s highs as investors were focused elsewhere amid a lack of data in the euro area. The ECB’s President Mario Draghi participated yesterday in a panel discussion about monetary policy at the Peterson Institute for International Economics, in Washington DC. Draghi did not give any new information, but emphasized that keeping rates at historic lows well past the beginning of QE tapering, is very important for markets to anchor interest rate and inflation expectations. No data will be released today.

USD

The dollar gained against most of the G10 currencies, lifting the dollar index DXY some 0.13%. The US core Producer Price Index, which excludes volatile instruments such as food and fuel, climbed 0.4% month-on-month, double estimates, and putting the year-on-year rate at 2.2%. Today’s consumer price index and retail sales will be closely watched after the Federal Open Market Committee minutes showed various officials remain concerned with the current pace of inflation. CPI and retail sales data will be released at 13.30 BST.

UK News- 13/10/2017

BBC: Brexit: EU ‘to prepare’ for future trade talks with UK. The EU is to begin preparing for its post-Brexit trade negotiations with the UK, while refusing to discuss the matter with the British government. An internal draft document seen by the BBC suggests the 27 European Union countries should discuss trade among themselves while officials in Brussels prepare the details. The draft text could yet be revised. The draft paper submitted to the 27 EU states by European Council president Donald Tusk, suggests free trade talks could open in December – should Prime Minister Theresa May improve her offer on what the UK pays when it leaves. The BBC’s Europe correspondent Adam Fleming said the paper has been described as an “opening to the UK” to encourage the government to reach a deal with the EU.

FT: Theresa May forced to delay flagship EU withdrawal bill. Timetable slips in face of a planned rebellion by pro-European Tory MPs. Theresa May has been forced to delay the introduction of her flagship EU withdrawal bill in the face of a planned rebellion by pro-European Tory MPs who are working intensively across party lines to rewrite the legislation. The bill had been expected to return to the floor of the House of Commons next week for the start of eight days of detailed scrutiny, but that timetable has slipped as the prime minister’s team try to head off multiple rebellions. Andrea Leadsom, leader of the House of Commons, said on Thursday that “some 300 amendments and 54 new clauses have been proposed” by MPs who had “concerns about the bill”.

News in Brief - 12/10/2017

GBP

Sterling remained largely unchanged against the dollar but fell against the euro yesterday, however it seems to be finding some firmer ground at the start of the European session this morning. The stabilisation of the Catalan crisis and the aggravation of the British Prime Minister’s situation, now against a challenging Jeremy Corbyn, weighed on sterling yesterday. Probabilities of an interest rate hike remain broadly unchanged, near 80% for early November, but consensus is building with regard to the implications for sterling. Inflation in the UK is among the G10’s highest, and a move by the Bank of England may not imply further tightening to come. As a result, we do not to see a significant appreciation of sterling should interest rates be lifted next month. However, the opposite scenario, a non-event by the BoE, could lead to a sharp drop in sterling. This scenario has started to be priced in the option markets with a significant increase in the demand of put options in case sterling falls within the next month.

EUR

The euro enjoyed a relief rally yesterday as the Catalonian crisis calmed down and the Spanish central government appears to have regained control of the situation, at least for the moment. Mariano Rajoy, the Spanish Prime Minister, started the process of activating article 155 of the Spanish constitution, which allows the central government to suppress the autonomic government of a region and control it. As a condition to finally put article 155 into action, Rajoy has given the Catalan government 5 days to confirm whether Catalonia did or did not declare independence unilaterally, regardless of it being suspended for several weeks. Rajoy’s move now puts the ball in Catalan president Carles Puigdemont’s court, whose answer will determine the implementation of article 155 or not. Elsewhere on the continent, French inflation contracted slightly more than expected in September (-0.2% vs -0.1% expected).

USD

The dollar continues to slide against the euro, and did not manage to strengthen against a weak sterling yesterday. In our opinion, two reasons are explaining the drop in the US dollar. Firstly, the minutes released yesterday of the last Federal Reserve meeting showed less conviction for a third interest rate hike in 2017. Some Fed officials argued that another hike would depend on the evolution of inflation. The second reason is that markets are dumping the idea that last week’s wage growth data was actually positive for the future of inflation. Last week’s average hourly earnings are calculated as salary divided by hours worked, hence a contraction in the denominator—the numbers of hours worked in total—could actually push the ratio up and send a conflicting message. Lael Brainard, the most critical voice of the dove camp in the Fed, speaks today at 15.30 BST, and could potentially be a market mover.

UK News- 12/10/2017

FT: Spanish prime minister demands clarity on Catalan independence Rajoy says Puigdemont’s response will dictate events as Madrid weighs ‘nuclear option’. Spain’s prime minister has opened the way for Madrid to use a constitutional “nuclear option” to suspend Catalonia’s autonomy, demanding that the regional government makes clear whether it considers itself independent. Mariano Rajoy decided to take the first step towards triggering Article 155 of the Spanish constitution, which would give Madrid previously unused powers to take control of Catalonia’s regional government, after an emergency cabinet meeting on Wednesday. Stepping up pressure on the Catalan government, he has given Carles Puigdemont, the Catalan president, five days to clarify the suspended declaration of independence he made on Tuesday. Mr Rajoy said his formal request for clarity was “necessary when activating Article 155” and would dictate the next steps in the crisis to “offer certainty to the citizens”.

Reuters: In Brexit poker, clock narrows transition options Nerves are fraying in the Brexit talks, negotiators are trying to work out if the other side is bluffing about walking away, and a ticking clock is fast narrowing British options come March 2019. Philip Hammond, the chancellor, echoed recent EU assertions when he said that a transition period to some new relationship was a “wasting asset”, the value of which would “diminish significantly” for both sides if its form remains unclear to businesses much after the start of the new year. As negotiators in Brussels make little progress before Prime Minister Theresa May meets EU leaders next week, a warning about a breakdown in talks from a minister seen strongly to favour a business-friendly “bespoke” transition out of the EU came a day after the EU summit chair spoke of a similar new year deadline. Donald Tusk said on Tuesday that if London fails to settle divorce terms by December, and so unlock talks on the transition and future trade pact, then the EU would reconsider its objectives. That reflects mounting doubts across Europe that any legal exit deal can be struck.

News in Brief - 11/10/2017

GBP

Sterling traded higher yesterday supported by positive data from the industrial, manufacturing and production sectors. However, the trade deficit expanded significantly beyond expectations to a new 10-year high, highlighting the difficulties the UK is facing after Brexit, despite the depreciation of sterling. A much weaker pound was expected to boost exports after Brexit but, so far, only the higher costs of imports are being reflected in the current account balance. Perhaps, the increase in the trade deficit will favour a softer stance towards Brexit from hard liner ‘Brexiteers’, as a bad deal with the EU would surely damage further the trade balance. Nonetheless, the improvement in manufacturing production (2.9% year-on-year), construction output (3.5% year-on-year) and industrial production (1.6% year-on-year) could further encourage the Bank of England to hike rates before year end.

EUR

The euro shrugged off the potential for the political crisis in Spain to deepen yesterday as the world awaited a speech from Catalonia’s President Carles Puigdemont, and indeed continued to strengthen even after Puigdemont declared “independence”. Puigdemont’s play yesterday was to suspend the formal implementation of independence, as it aims to restart negotiations with Spanish President Mariano Rajoy’s government. The CUP, a pro-independence Catalan party, stated that Puigdemont’s move was a total betrayal to the region, and meant all sacrifice had been done for nothing. Other less radical parties declared that the Catalan president decision was reasonable. The decision appeared to be influenced by the last week events, where several companies based in Catalonia decided to transfer their HQ to other regions in Spain, including the two most important Catalan banks and other Ibex 35 blue chips. As a result, the state of independence will remain in limbo for the coming weeks, and possibly months.

USD

The US dollar fell yesterday against all the G10 currencies in a confusing session for the greenback. No data, economic release nor political event triggered the drop in the US dollar. However, the euphoria that surrounded last Friday’s non-farm payrolls release, and the massive increase of wage growth, appears to be falling apart and that’s weighing on USD currency crosses. The greenback posted a fresh 2-month high against the euro last Friday, but has continuously fallen since then. The latest Fed meeting minutes will be released today at 19.00 BST, which should give hints on the Federal Open Market Committee’s intention towards hiking interest rates before year end.

UK News- 11/10/2017

FT. Catalan leader steps back from immediate independence declaration Puigdemont says region has won right to become republic but calls for dialogue. Catalan leader Carles Puigdemont stepped back from making a formal declaration of the region’s independence on Tuesday as he called for more dialogue with Spain following last week’s referendum. Catalonia’s president told the regional parliament in Barcelona the region had won the right to become independent after the October 1 vote but was prepared to wait “a few weeks” as it holds talks. “I assume the mandate that Catalonia becomes an independent state in the form of a republic,” he said, prompting a long bout of applause from the pro-independence camp in the regional parliament. But he added: “I propose suspending the effects of the declaration of independence to undertake talks in the coming weeks without which it is not possible to reach an agreed solution.”

Reuters. May refuses to say how she would vote in another Brexit referendum May backed staying in the European Union in the June 2016 Brexit referendum but took a low-key role in the campaign. She won the top job after David Cameron, who had also campaigned to remain, resigned in the chaos following the shock result of the vote. Asked if she had changed her mind since then, she said she did not answer hypothetical questions and said her job was now to deliver what the people had voted for. “I voted remain for good reasons at the time, but circumstances move on and I think the important thing now is that I think we should all be focused on delivering Brexit and delivering the best deal,” she said on an interview on LBC radio on Tuesday.

News in Brief - 10/10/2017

GBP

Sterling posted a small rally yesterday, giving it some breathing room after last week’s losses, and ahead of this morning’s top tier data releases. Political back and forth over Brexit, with little new material information emerging as Theresa May gave her umpteenth speech on the topic, saying the ball was now in the EU’s court, only to have a European Commission spokesperson issue a rebuke that essentially said “no it isn’t, it’s on your side”. This morning’s data will include Manufacturing and Industrial Output, as well as Construction Output and the Goods Trade Balance. Later in the morning at 11:00 BST, the Office for Budgetary Responsibility will release its latest government budget projections, and is expected to provide yet another blow to May’s Government by reducing estimates of income.

EUR

The euro pared back recent gains versus sterling yesterday, but advanced against USD. The European Central Bank’s Sabine Lautenschlager made some comments on the end of Quantitative Easing, saying the ECB should taper its purchases at the start of 2018 and follow a set schedule. Aside from Sabine’s comments the day was uneventful, with Sentix Investor Confidence soaring to its highest level in years. This morning’s data has included A larger than expected German Trade Balance figure, and weaker than expected French Industrial Production, which contracted 0.3% after a 0.8% expansion last month.

USD

Yesterday was Colombus Day in the US, and the greenback weakened to GBP and EUR while no headline data was released. The week’s calendar will be off to a slow start today, with only a speech from the Federal Open Market Committee’s Neel Kashkari at 15:00BST, and IBD Economic Optimism released at the same time.

UK News- 10/10/2017

FT: Theresa May sets out trade plans for a no-deal Brexit. PM says Florence speech set new dynamic but white paper prepares for vacuum. Theresa May has set out detailed plans for the first time on how Britain would try to keep trade flowing if it fell out of the EU without a deal, as the prime minister prepared for a high-stakes game of brinkmanship with Brussels. She told MPs that her conciliatory speech in Florence last month had introduced “a new dynamic” into Brexit talks but added that the government had a duty to prepare for them failing. The move will be seen in Brussels as a welcome outbreak of realism in London, but it crosses Brexit “red lines” set out by foreign secretary Boris Johnson and angered some Conservative Eurosceptics.

BBC: UK still pulling in the tourists. One thing booming in the UK at the moment is tourism with record numbers of overseas visitors flocking over here to see the sights. Steve Ridgeway, chairman of VisitBritain, told the Today programme: “It’s one of the few pluses you can have at this point and we may hit the magic 40 million number this year. “Staycations are also on the rise – that has been going on a while and can be traced back to the global financial crisis. It is also more expensive for UK residents to go overseas.” With freedom of movement laws set to change after Brexit, Mr Ridgeway added: “A total of 70% of tourists to the UK come from Europe and we want to make sure people are welcome here and there are still reasons to come to the UK.”

News in Brief - 09/10/2017

GBP

Sterling extended its losses last week against both EUR and USD, amid political turmoil for the government and poor fundamental data that pointed towards a slowing economy. This week is rather sparse in terms of fundamental data, but Tuesday will see the release of several high frequency “hard data” indicators from the Office for National Statistics, including Industrial Output, Construction Output, and the Goods Trade Balance. Also out on Tuesday will be the Office for Budgetary Responsibility’s assessment of the Treasury’s revenues. Reporting from the Financial Times indicates that a substantial reduction in revenues is expected to reduce the Treasury’s budgetary “headroom”.

EUR

EURUSD made a couple of fresh two month lows last week, but showed signs of losing momentum on Friday. This week’s data calendar is somewhat sparse, but this morning at 09:30 BST Sentix Investor Confidence figures will be released. The Eurogroup of finance ministers will meet today and tomorrow, creating the potential for political headlines. The week’s other major events will be an appearance by European Central Bank President Mario Draghi on a panel discussion of monetary policy on Thursday, and German Inflation data on Friday.

USD

Last Friday’s labour market data was left nobody indifferent. The contraction in headline job creation contracted surprised markets somewhat. Although a significant slowdown was expected, few economists forecasted that employment would snap a 72-month streak of growth. However, wage growth was the most important figure of the day, skyrocketing above all estimates to 2.9% year-on-year, the highest it has been since 2009. The increase in wage growth should be very welcome by the Fed, as it could signal the end of a persistent, and contradictory macroeconomic relationship over recent years between low unemployment levels yet muted levels of wage growth. Financial markets are closed today in observance of Columbus Day.

UK News- 09/10/2017

FT: Brexit ball is in the EU’s court, May to tell MPs. Bank chief warns of 6-month deadline for bargain but minister says no deal considered. Theresa May is expected on Monday to tell other EU countries that the “ball is in their court” in the Brexit negotiations, as she pushes to make progress in talks that have been deadlocked. Mrs May will challenge the other 27 EU members in a statement to the House of Commons just as UK and EU negotiators in Brussels are scheduled to begin a fifth round of negotiations over the terms of the UK’s departure from the bloc. Business has become particularly frustrated by the slow pace of discussions to agree a post-Brexit relationship. But Sir Howard Davies, chairman of RBS, warned that the government had only six months to secure a transition deal. If there was no deal by March, companies, including RBS, would start to move jobs to other parts of the EU, Sir Howard told Sky News. “If there are no details by the first quarter of next year, the number of moves of people out of London will accelerate,” he said.

Reuters: Weakened May to give bullish Brexit prognosis but say ball is in EU’s court. Prime Minister Theresa May, weakened by a disastrous party conference, will give British lawmakers a bullish prognosis for negotiations over exit from the European Union on Monday, but tell them that it is up to Brussels to make the next move. May has seen her authority erode since calling and then bungling an election in June, which cost her Conservatives their majority in parliament. At her party’s conference last week, her final speech was marred by a coughing fit and letters falling off the slogan on the set behind her. A former chairman of the party announced that a group of Conservative lawmakers was trying to topple her.

News in Brief - 06/10/2017

GBP

Sterling came under further selling pressure yesterday, as news of a brewing rebellion against the Prime Minister made it to the wires. Grant Shapps, former Conservative chairman, emerged as the leading figure of the plot against Theresa May, saying that it is the Tory MPs’ right to “urge the UK Prime Minister to quit”. This week has been a bad week for the pound, with a string of data on the whole being disappointing, negatives headlines continuing to abound regarding Brexit, and now the PM having to fight off a rebellion from within her own party. A likely candidate, should May be forced to quit, would be Boris Johnson, a well-known hard Brexit advocate. Sterling’s immediate future does not look great at the moment, and expectations of May resigning could lead to markets pricing in a harder Brexit aggressively.

EUR

The single currency remains relatively out of the spotlight as events in the UK dominate headlines, though has continued to weaken against the dollar, currently sitting at close to the lowest level in three months. The Catalan crisis remains the main theme of the Eurozone as Spanish central government tightens its grip around Catalan leaders ahead of a critical speech on Monday by Cataluña’s President Carles Puigdemont, where he is expected to declare the independence unilaterally. The two most important Catalan banks, Sabadell and Caixa Bank, both have reallocated their HQ to other Spanish regions outside the affected region, and the Spanish central government aims to pass a decree that would allow any company based in Catalonia to reallocate anywhere else in Spain. Euro area retail sales data unexpectedly contracted in the euro area today.

USD

The dollar consolidates as the strongest currency this week, favoured by very positive data in the US this week and negative sentiment elsewhere. Now all eyes are focused on this week’s payroll data. The U.S. September payrolls data will provide a decent glimpse at output impairment from the summer storms. Consensus expects an 80,000 job increase, about half of August’s total, with a modest uptick in the pace of wage growth to 0.3% on the month. If payrolls beat estimates, despite current low expectations, it would likely improve momentum in the dollar ahead of the weekend. The labour market data will be released at 13.30 BST.

UK News- 06/10/2017

FT: Plot to oust Theresa May breaks into the open. Ex-Tory chairman Grant Shapps emerges as ringleader of rebellion against prime minister. Grant Shapps, former Conservative chairman, has emerged as a ringleader of the plot to oust Theresa May, saying that Tory MPs were “perfectly within their rights” to urge the UK prime minister to quit. Mr Shapps said up to 30 Conservative MPs supported the move but that no current cabinet ministers were involved, as the party reacted to Mrs May’s disastrous party conference this week. Speaking on BBC 5 Live, Mr Shapps said: “We did have a result that was not at all what anyone wanted, least of all what she wanted or anticipated, and?.?.?.?sometimes when things happen you have to take responsibility for them.

Reuters: Both pro and anti-Brexit MPs back ousting May – Shapps. Former Conservative Party chairman Grant Shapps said on Friday that both supporters and opponents of Brexit were among the 30 lawmakers who back a plot to topple Prime Minister Theresa May. Divisions over May’s future burst into the open on Friday after her conference speech was ruined by a comedian, coughing fit and even letters falling off the slogans behind her on stage. Shapps told BBC radio that there was a broad range of MPs urging May to step down. “These are Remainers, they are Brexiteers. They would never automatically agree on a single candidate and this is not about promoting an individual,” he said.

News in Brief - 05/10/2017

GBP

Sterling saw some intraday volatility yesterday, but closed roughly flat against USD and EUR. The Services Purchasing Managers Index rose slightly to 53.6 in September, suggesting that the sector remains in steady growth, although the increase in new work orders slowed, and the figures also showed the fastest rate of price inflation since April. Elsewhere, Theresa May gave a speech to the Conservative Party conference, launching renewed policies on housing, economic opportunity, tuition fees and energy prices. However, the broadly progressive content of the speech and personal appeals about the “British dream” were utterly overshadowed by the descent of the speech’s delivery into slapstick comedy. The speech’s mishaps included (and this is not a complete list) uncontrolled coughing, slogan lettering falling off a wall on camera, being handed unemployment papers by a prankster and having a foreign minister being told to stand for an ovation. Today at 18:30 and 23:30 BST the Bank of England’s McCafferty and Haldane will speak, respectively.

EUR

Euro trading was uneventful yesterday, as the media continued to focus on escalating constitutional tensions in Spain. Carles Puigdemont, the Catalan President, gave a speech criticising King Felipe VI’s appeals for unity on Tuesday, adding the Rajoy Government was “irresponsible” for not accepting mediation of the crisis. On Monday, Puigdemont is set to officially address the Catalan Parliament in order to “discuss the results” of the referendum. Puigdemont is widely expected to use the platform to follow through on its own legislative promise of a unilateral declaration of independence, which under Spanish constitutional law would constitute a rebellion. The Spanish Government does have emergency legal powers to take control of the Catalan legislature should this occur, and with senior members of the Catalan police facing charges of sedition- which carries a 15 year penalty in Spain- the situation remains extremely fragile. A crop of Services Purchasing Managers’ Indices were released yesterday, showing solid growth across the euro area, including Spain. However, monthly Retail Sales contracted 0.5% across the eurozone. Today at 12:30 BST the European Central Bank’s latest meeting minutes will be released.

USD

The dollar trades lower against the euro, following yesterday’s trend, but it has strengthened significantly against sterling following negative political headlines in the UK. The future of the dollar continues to be coloured by speculation regarding the next Federal Reserve Chair, which is due to be nominated by President Donald Trump in the coming weeks. The incumbent Chair Janet Yellen, who’s speech yesterday avoided the topic of interest rate policy and thus had little market impact, is currently only third favourite to be in the position next year, behind fellow Fed member Jerome Powell, and the current favourite, Stanford fellow Kevin Warsh. Warsh is, in particular, seen as more hawkish than Yellen, and thus his appointment would likely give USD a medium term boost. That said, Powell is due to speak at 2.10pm GMT today, and so any comments he makes on monetary policy in either direction will trigger a knee-jerk reaction in the dollar. Elsewhere, in terms of economic data U.S. August factory orders could surprise to the upside today, given a strong preliminary print on the durables component, after good Service sector numbers yesterday afternoon. Initial jobless claims are also due, with other Fed speakers today including Patrick Harker, Kansas’s Esther George and San Francisco’s John Williams.

UK News- 05/10/2017

FT. Catalan leader lashes out at Spanish king for taking Madrid line Carles Puigdemont vows to press ahead with declaration of independence. Carles Puigdemont, the Catalan president, has accused King Felipe VI of following the central government’s “catastrophic” policies towards the region, pledging to push ahead with a formal declaration of independence in the coming days. In a sign that the Spanish king’s intervention on Tuesday night did little to calm one of the most severe political crises since the country’s return to democracy in the 1970s, Mr Puigdemont lashed out at the monarch late on Wednesday and called the central government “irresponsible” for not accepting mediation in the political crisis. King Felipe took an uncompromising line in a rare address to the nation on Tuesday that mimicked that of hardliners in the ruling centre-right Popular party government. He accused the separatist Catalan government of flouting the law and seeking to “break the unity of Spain”.

Reuters. May is not considering resigning after ruined speech, Sky says Prime Minister Theresa May is not considering resigning, Sky news reported on Thursday, citing her Downing Street office. “Downing Street: Resignation is not an issue,” Sky said on its screen. A spokesman for PM May did not comment on the report. A spokesman for the Conservative Party did not comment. May’s bid to reassert her dwindling authority was ruined on Wednesday when her keynote speech was interrupted by repeated coughing fits, a prankster, and even letters of her slogan falling off the set behind her.

News in Brief - 04/10/2017

GBP

Sterling appears to have stabilised after several sessions of drops against EUR and USD. Macro data over the last few days has been awful for the UK’s overall economic picture. Construction survey data contracted yesterday for the first time in more than a year, showing a strong contraction in commercial building, dragged by the underperformance of the retail sector this year, a contraction in the civil engineering work and a steep slowdown in housing building. These figures caught markets by surprise and add up to the poor manufacturing data on Monday and the downward revision of the gross domestic product figures last Friday. However, the Services Purchasing Managers Index, which represents almost three quarters of the UK economy, did manage to slightly beat expectations this morning, with a 53.6 reading against a 53.2 forecast providing some respite.

EUR

The euro has recovered some of the lost ground over the last couple of days against GBP and USD, favoured by data and a strong technical support levels. Services Purchase Manager Indices kept rising, albeit marginally, quickly approaching previous five year highs. The data and positive sentiment helped the euro to avoid being weighed down too much by the ongoing Catalan crisis. The King of Spain spoke gave a speech yesterday—the King only speaks once a year normally and rarely intervenes in political matters—condemning the anti-constitutional behaviour of the Catalan leaders, whom proceeded with an illegal referendum over the weekend, though the heavy-handed tactics of the police in attempting to stop the vote drew international criticism. The fact that the King has felt the need to intervene highlights the extremity of the situation Spain is currently facing. This is also reflected in Spanish sovereign debt yields—10-year tenor, which have skyrocketed 18 basis points this week, to 1.78%. No major data will be released today.

USD

The dollar remained out of the spotlight yesterday as other developments in the Eurozone dominated the headlines. However, this is likely to change today as important data is released later this afternoon. The private estimate of Friday’s non-farm payrolls by the agency ADP is released at 13.15 BST, and will provide some insight on how hurricane Irma affected hiring last month. Expectations for job creation on September are quite low for the same reason, but the extent to which hiring slowed down are completely unknown. The non-manufacturing purchase manager index by the agency ISM will be released at 15.00 BST, and could be a significant USD mover.

UK News- 04/10/2017

FT. Spain’s king censures Catalonia in rare political intervention Felipe VI accuses secessionists of placing ‘themselves outside the law and democracy’. King Felipe VI of Spain on Tuesday night voiced harsh criticism of the “irresponsible” Catalan government for its independence campaign, in a rare televised speech that stressed the crown’s commitment to the unity of the country. Catalonia’s authorities, he said, “have placed themselves outside the law and democracy, they have tried to break the unity of Spain and national sovereignty”. Offering firm backing to the Spanish government of Mariano Rajoy, King Felipe said it was the “responsibility of the legitimate powers of the state to ensure the constitutional order”.

Reuters. Brexit uncertainty prompts shock British construction contraction Britain’s construction companies in September reported the sharpest fall in activity since just after June 2016’s Brexit vote, as clients put projects on hold due to uncertainty over the economy. Although construction makes up just 6 percent of Britain’s economy, the survey suggested it was likely to drag on official third-quarter growth figures, just as the Bank of England gets ready to raise interest rates. The IHS Markit/CIPS construction purchasing managers’ index (PMI) sank to 48.1 in September from August’s reading of 51.1, its lowest since July 2016 and far below all forecasts in a Reuters poll of economists.

FT. UK service sector growth increases but confidence fades while costs rise Firms in the UK’s important services sector reported better than expected growth in September in a closely-watched survey, but warned of potential difficulties ahead as new business growth fell to its lowest level in more than a year. The purchasing managers’ index increased from 53.2 to 53.6 – still weaker than its average over the first half of the year but better than economists had expected and comfortably above the 50 level that indicates expansion. The solid figures for the sector – which accounts for 80 per cent of the UK economy – will come as a relief after surveys of the manufacturing and construction sectors disappointed earlier this week. Manufacturers reported slower growth and weaker confidence across the board, while construction firms reported their first contraction in more than a year.

News in Brief - 03/10/2017

GBP

Sterling suffered yesterday after poor manufacturing survey data showed no improvement whatsoever in the sector. The sector was expected to shine after Brexit, due to a weaker sterling and weaker related imports, but no sprouts can be seen yet. Moreover, yesterday’s data magnified the doom and gloom observed last Friday when Gross Domestic Product data was revised downwards and consumer debt and trade deficit data skyrocketed. If it was not enough, a new political crisis is brewing inside the Tory party with Foreign Secretary Johnson challenging the Brexit negotiations and betting on Theresa May’s departure timing as Prime Minister. Discouragement continues today with the construction survey data, which fell into negative territory for the first time in more than a year.

EUR

The single currency fell overnight to a 6-week low against the dollar but is recovering at the time of writing after reaching a technical and psychological support level earlier this morning. The euro weakened yesterday as the Catalonian referendum brought back the Eurozone’s political crisis spooks. The conflict appears to have calmed down for the moment as the Catalan government seeks EU mediation in any future negotiations, in an attempt to push the Spanish central government to start to dialogue. France, Germany and the Netherlands back the Spanish central government chase of the state of law, whereas the EU Commission asked Spain not to use violence again. Today will be a quiet day in terms of macro data, and the euro will fluctuate on sentiment and the evolution of the Catalan crisis.

USD

The dollar advanced yesterday versus all G10 currencies favoured by impressive manufacturing survey data. The ISM Manufacturing Purchasing Managers Index jumped to a 13-year high, with the reported level of new orders being particularly strong. This is a positive albeit tentative indicator that US growth for the rest of 2017 will keep pace, giving further ammunition for Federal Reserve members who are in favour of further interest rate hikes sooner rather than later. No data will be released today in the US, but Jerome Powell, voting member of the interest rate-setting Federal Open Market Committee, will speak at 13.30 BST.

UK News- 03/10/2017

FT: Catalan president urges EU to mediate after independence vote. Carles Puigdemont says region wants to avoid ‘traumatic break’ from Spain. The Catalan government said it wanted to avoid a “traumatic break” from Spain and appealed to the EU to help mediate with Madrid, in signs it was holding back from an early declaration of independence after Sunday’s referendum on secession. Catalan president Carles Puigdemont said that after Sunday’s vote, when 90 per cent of the 2.3m ballots cast were in favour of independence, Catalonia now had the right to be free from Spain. But he hinted that this would not happen immediately. “There is no button to push for independence, it does not exist,” said Mr Puigdemont at a press conference. He called on the EU to help broker negotiations: “It is not a domestic matter?.?.?.?It’s obvious that we need mediation.”

FT: UK construction activity falls for first time in 13 months. “Fragile confidence and subdued risk appetite” in the commercial building sector caused activity in the UK’s construction sector to decline for the first time in more than a year in September, according to a closely-watched survey The purchasing managers’ index for the construction sector dropped from 51.1 to 48.1, below the key 50 level that indicates expansion over the month. Economists had expected slight growth with a reading of around 51. The data follow similarly disappointing results from IHS Markit’s survey of the manufacturing sector, released on Monday, and will fuel fears that waning confidence is causing an economic slowdown. The PMI surveys question firms on factors such as new orders, hiring and inventories to gain a picture of the overall health of a sector, and are seen as useful early indicators of growth.

News in Brief - 02/10/2017

GBP

Sterling opened the week higher against the euro, but is falling further against the US dollar. Theresa May is under pressure to fire the Foreign Secretary after he suggested over the weekend that the Prime Minister would be out within a year, he also again challenged the last round of the Brexit negotiations. This is the second time he has done so in less than two weeks. Last week’s poor data will weigh on sterling this week as markets digest its implications for the Bank of England. Consumer debt data was especially worrisome, as it showed a year-on-year increase of 9.8%. Manufacturing survey data also disappointed this morning, sending sterling to new two-week lows.

EUR

The single currency opened lower against most of the G10 currencies due to yesterday’s Catalan referendum. Puigdemont, the Catalan President, challenged the Spanish constitutional court decision after the court called the referendum illegal. Hundreds were injured as independance supporters tried to vote, whilst the Spanish police forces had instructions to access polling stations and confiscate the ballot boxes. A few hours before the voting began, the Catalan government allowed people to vote in any polling station, leading to irregularities such as people reported voting twice. Other irregularities were also reported such as a possible ballot box full of pre-completed ballots and anomalies in some towns census data. Nonetheless, yesterday’s violence was not justified did nothing but increase the Catalan pro-independence sentiment and further worsened the problem. Prime Minister Mariano Rajoy will have an emergency meeting today.

USD

The dollar is stronger versus all the G10 FX this morning after last week’s schedule of Fed speakers pencilled in a third rate hike in 2017. The Fed’s Patrick Harker said on Friday he had started to see some wage pressure, something the Fed has been impatiently awaiting as a signal for higher inflation in the future, supported by a tighter labour market. However, Friday’s inflation data did not seem to reflect this. Another factor for USD strength appears to be Trump’s expected announcement of the next Fed Chair. US yields jumped on Friday after former Fed official Kevin Warsh met with the President, suggesting markets see him as a hawkish option. Several Fed officials will speak again this week, including Chair Janet Yellen, which could give further insight about the Fed’s expectations. Manufacturing survey data will be released at 15.00 BST today.

UK News- 02/10/2017

FT: Catalonian president close to declaring independence. More than 760 people injured in clashes as Catalans defy Madrid over vote. Catalonia’s president has signalled that the region is on course to declare independence from Spain in the coming days after more than 2m people defied attempts by Madrid to halt Sunday’s referendum to back independence. Carles Puigdemont said that the region’s citizens had “earned the right to have an independent state” after 90 per cent of the 2.26m votes cast — out of just over 5m eligible voters — were in favour of independence. “My government, in the next few days, will send the results of today’s vote to the Catalan parliament, where the sovereignty of our people lies,” he said. The parliament had previously promised independence within 48 hours of a Yes vote. A declaration of independence would have no legal force, as the Spanish constitutional court has ruled the referendum illegal and invalid. Such a declaration was also likely to have no backing from the international community.

Reuters: UK consumer credit picks up in August as Carney points to lending risks. Consumer lending in Britain rebounded in August and rose by the largest amount in three months, Bank of England figures showed on Friday, shortly after Governor Mark Carney said banks had been lending too much. Consumer credit increased by 1.583 billion pounds last month, compared with a rise of 1.166 billion pounds in July. A Reuters poll of economists had pointed to a reading of 1.35 billion pounds. Earlier on Friday Carney said there was no overall debt bubble in Britain but that the BoE was worried about “a pocket of risk” in consumer debt that has been growing at about 10 percent a year. “We think banks have been giving too much credit … and not been as disciplined as they should be in their under-writing standards and their pricing on this debt,” he told BBC radio. Consumer lending was 9.8 percent higher in August than a year ago, Friday’s figures showed, the same growth rate as in July.

News in Brief - 29/09/2017

GBP

Sterling enjoyed a short lived rally after the UK and EU Brexit negotiators, David Davis and Michel Barnier respectively, praised the developments of the negotiations. The EU’s chief negotiator on Brexit has said that Theresa May has injected a “new dynamic” into exit negotiations, but warned that obstacles remain before Brussels agrees to start crucial discussions on transition. The final GDP and current account figures for the second quarter have been released a few minutes ago. The UK’s trade deficit is not showing any signal of improvement, not even after sterling’s significant depreciation. This is worrisome and a drag for the UK’s gross domestic product, which could not beat a 0.3% increase in the second quarter, the slowest pace of the European countries in the same period.

EUR

The single currency is recovering from this week’s lows after positive consumer confidence data and political developments. The eurozone’s consumer confidence index rose again to new all-time highs highlighting the excellent situation of domestic consumption in the euro area which at the same time will impact positively the economic groeth of the area. Angela Merkel spoke yesterday in Tallin and said she was ready to work towards a more integrated Europe, encouraging France’s Macron ambitious agenda. Although there are many known unknowns in such process, markets reacted positively to the draft of an upcoming Franco-German alliance. France’s inflation data today showed the consumer price index jumping to 1.1%, above expectations, at the same time German unemployment fell to 5.6%, a record low, although the retail sales index of the same country contracted considerably in August. The eurozone’s overall inflation index will be released at 10.00 BST.

USD

The dollar was stronger against G-10 peers and Treasury yields crept higher as Trump’s tax reform related optimism increases. Personal spending and income data, which will be released later today at 13.30 BST, may have been distorted by hurricanes in August. Consensus is for a tiny 0.1% increase in spending but other sources warn of a downside risk. The core PCE deflator, the Fed’s preferred inflation gauge, probably stuck at 1.4%. The hawkish FOMC view is that the weakness is temporary, idiosyncratic or not so important. In whichever case, the measure was at 1.9% at the start of the year.

UK News- 29/09/2017

FT: Merkel signals readiness to engage with Macron on EU reform French leader’s speech set ‘important building blocks’, says German chancellor. Angela Merkel gave her strongest signal yet that she is prepared to engage with France in discussions about reforming the EU, saying there was a “high degree” of consensus between Europe’s two biggest countries. The German chancellor, who emerged victorious but bruised by the election result where her party lost seats, said the speech by French president Emmanuel Macron this week had set “important building blocks” for EU negotiations to come, although she cautioned the two countries still had “to talk about the details”. Ms Merkel was speaking in Tallinn, Estonia, where EU leaders gathered on Thursday evening for a dinner convened by Donald Tusk, EU Council president, to take stock of reform options following the German elections.

Reuters: UK on track for rate hike in ‘relatively near term’ – Carney Bank of England Governor Mark Carney said on Friday that Britain’s economy was on track for the central bank to start raising record-low interest rates in the “relatively near term.” “What we have said, that if the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat,” Carney told BBC radio. The British central bank surprised markets just over two weeks ago when it said most of its policymakers thought the first rate hike in more than a decade would be needed “in the coming months,” if inflation pressure continued to build. Carney has previously said he was one of those policymakers. Most economists now expect the BoE to raise its Bank Rate to 0.50 percent from 0.25 percent on Nov. 2, at the end of its next policy meeting.

News in Brief - 28/09/2017

GBP

Sterling continue to strengthen against the euro, although it fell to a two-week low against the dollar yesterday. Retail sales data in the UK was very positive yesterday, with the CBI retail sales index unexpectedly rising to +42 versus expectations of +8, a huge print that aligns perfectly with the Bank of England’s view on domestic consumption and that, at the same time, is a condition for possible interest rate hikes in the near future. Andy Haldane, the Bank of England Chief Economist, said yesterday night that he and other members of the central bank see encouraging signals for future wage growth, which could well support such hike in the near future. No data will be released in the UK today, but Theresa May will speak at the Bank of England’s conference celebrating 20 years of independence in London.

EUR

The euro weakened further yesterday as the German elections drag down any positive sentiment in the single currency. End of the quarter currency flows and portfolio allocations could do little to help the euro as its significant appreciation over the last three months may force some rebalancing. The German GfK Consumer Climate indicator fell marginally below expectations, although it remains very close to the last month’s all time highs. No more data will be released today.

USD

USD was well bid yesterday, and continued to strengthen against a number of major currencies, notably CAD, NOK, and AUD. The dollar’s gains against the euro were smaller in percentage terms, but EURUSD did reach fresh lows for the third consecutive day. The Trump administration and senior Republican lawmakers unveiled the outline of a tax reform plan that sought to slash corporate taxation and make reductions to personal income taxes. Steve Rosenthal called the plan “ill-formed”, noting that it consisted of principles and little content. Nonetheless, the release of the plan represents progress in a critical issue for USD, and developments will bear watching closely. Today at 13:30 BST revised Gross Domestic Product data will be released, alongside Unemployment Claims, the Goods Trade Balance, and Wholesale Inventories. The Fed’s Stanley Fischer will speak at 15:15.

UK News- 28/09/2017

Reuters: BoE’s Haldane – pay signs encouraging, rate hike would be good news. Bank of England Chief Economist Andy Haldane said he saw encouraging signs of pay growth and any increase in interest rates should be seen as a “good news story” for Britain’s economy, Sky News quoted him as saying on Wednesday. Haldane also said he was among of the majority of BoE rate-setters who, at their meeting this month, felt that Britain’s first interest rate hike in a decade might be needed in the coming months. “In the September minutes in particular, a majority of the committee – of which I am one – said that we could be nearing the point where a reduction in some degree of monetary stimulus might be warranted in the coming months,” Haldane said.

FT: May to mount defence of free market to challenge Corbynism. Prime minister’s speech seeks to take fight to Labour leader on economy. Theresa May will tonight mount a robust defence of the free market, in an acknowledgement that the Conservatives have for too long failed to take the fight to Labour leader Jeremy Corbyn on the economy. Mrs May will call a well-regulated free market “the greatest agent of collective human progress ever created”, adding that it was “the only sustainable means of increasing living standards of everyone in a country”. Cabinet ministers admitted after this year’s election that the Conservatives had made a strategic mistake in failing to fight Labour on the economy, allowing Mr Corbyn to make the case for state intervention almost unchallenged. “We thought we had won the argument for the free economy but we are going to have to start making it all over again,” said one minister.

News in Brief - 27/09/2017

GBP

Sterling continued to sell off against USD yesterday, amid broad dollar strength, and made only marginal gains versus the euro that came under threat overnight. Politics remained in the spotlight, as European Council President Donald Tusk struck a relatively optimistic tone in a speech following discussions with Theresa May. Tusk praised the constructive tone of discussions and May’s recent speech, but also made it clear that from his perspective negotiations had not progressed sufficiently to begin discussing the transition agreement sought by May.

EUR

The euro continued to fall back yesterday, particularly against the US dollar, as speculation intensified over the possible outcome of German coalition negotiations and French President Emmanuel Macron gave an ambitious, pro-integration speech. The issue of Wolfgang Schauble as finance minister is emerging as a key touchstone of negotiations, with many of Merkel’s possible coalition partners potentially interested in demanding the position in exchange for coalition support. Macron’s speech outlined an ambitious wish list of pro-integration reforms for Europe, including issues such as defence, increased EU budget, and various social and economic ideas. Until Germany has a new government, it’s difficult to judge how far Macron’s proposals are likely to get.

USD

USD strengthened yesterday and overnight, after Fed Chair Janet Yellen gave a speech arguing the Fed should continue its current gradual rate hikes, and anticipation built for the announcement of a new tax reform package by GOP lawmakers and the White House today. The core of Yellen’s speech was the inflation puzzle: the labour market has improved substantially over the last couple of years, to little inflation response of the sort predicted by most macroeconomic models, including those favoured by the Fed. Yellen acknowledged this uncertainty, but maintained that further gradual policy tightening was the appropriate response, and warned against a cautious approach as being too risky. The release of new tax reform plans is likely to dominate the news cycle and markets today, although Durable Goods Orders data will be released at 13:30 BST.

 
 

 

 
 

 

 
 

 

 
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