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Market News – 27 February 2017

GBP

Sterling hit a two-week high against the Dollar last week, with political worries in Europe and the US providing a distraction for the Pound.

The House of Lords is continuing to debate the bill that will trigger the UK’s exit from the European Union. Although the legislation is not expected to be blocked by the lords, the lack of a majority in the upper house may force the government into making certain concessions.

According to their most recent note, analysts at Morgan Stanley believe that Sterling will rebound to its pre-referendum levels before the conclusion of Brexit negotiations. Currency strategist Hans Redeker thinks the Pound is the most undervalued currency in the world, with expectations of rates as high as $1.45 by the end of 2018.

EUR

Marine Le Pen’s most senior advisors have recently met with BlackRock, UBS and Barclays among others to discuss plans to withdraw France from the Euro and the supporting economic blueprint. Le Pen believes the Euro to be a political weapon that allows the EU to impose policies on member states and keep them on a leash.

The announcement of meetings with several large financial institutions demonstrates how serious the markets are taking the prospect of a Le Pen victory, especially after recent political surprises in the UK and US.

One of Le Pens two business advisors, Bernard Monot said “These strategists see that Le Pen may be the next president of France and they are doing their due diligence. They’re very much looking for a detailed account of our plans.”

Dutch politicians wanting a comprehensive debate on whether to keep the Euro last week commissioned a report, with talks planned after next month’s general election.

With the ECB’s low-interest rate environment penalising Dutch savers, politicians want to establish how they could leave the single currency, with talks set to continue in several months’ time once the report has been finalised.

USD

Treasury secretary Steven Mnuchin recently stated that the impact of the administration’s economic program will not be seen this year, cutting deep into the ‘Trump trade ‘- the idea that that an expansionary fiscal stance would boost inflation and force the Federal Reserve into a steeper tightening cycle.

Net long positions supporting the Dollar increased last week for the first time in seven weeks, with speculators now holding over $15 billion in support. In a note to clients last week, Citi bank stated in the medium to long term, the USD may have another 6% upside against major currencies.

Rest of The World

An important indicator for Japanese GDP growth came in below expectations last Tuesday. The all-industry activity index for December fell 0.3%, slightly worse than the 0.2% fall predicted. The index measures the monthly change in overall production by all economic sectors.

The Mexican Peso recently returned to levels last seen the day after President Trumps election victory. US secretary of State, Rex Tillerson, met with Mexican officials and stated that “there will be no mass deportations”. He went on to say “”The focus of deportation will be on the criminal element, all of this will be done in close coordination with Mexico.”

The Canadian Dollar jumped to a one-week high against the US Dollar on Friday after data showed a spike in inflation. Gains were fairly muted ahead of the Bank of Canada’s interest rate decision this Wednesday. The jump in headline inflation to its highest annual rate in more than two years of 2.1% caught the market off guard.

Data This Week

Today:

US Durable Goods Orders

Tuesday:

UK Gkf Consumer Confidence

US President Trump Speech to Congress

Wednesday:

AUS GDP (YoY Q4)

CNY Non-manufacturing PMI (Feb)

EU Markit Manufacturing PMI (Feb)

UK Markit Manufacturing PMI (Feb)

US ISM Manufacturing (Feb)

CAD BoC Interest Rate Decision

Thursday:

CHF Real Retail Sales (Yoy Jan)

UK PMI Construction (Feb)

JPY Unemployment Rate (Jan)

JPY Consumer Price Index (YoY Feb)

Friday:

NZ RBNZ Assistant Governor McDermott Speech

US Federal Reserve Chair Yellen speech