Market News – Road to Brexit


Sterling has begun the trading week with a minor bid tone. Brexit developments last week were less than supportive, and it has been reported over the weekend that the EU will be intentionally vague with its Brexit guidelines due for release tomorrow to force UK to explain what it wants from negotiations. Meanwhile, the Telegraph said that the EU Commission is preparing to take a hard line over plans to “roll over” 50 EU free trade agreements during the Brexit transition period, in a threat to British exports.

On the data front, there was some good news from the UK service sector this morning as Markit Service PMI rose to 54.5 (f/c. 53.3) from 53.0 with business activity rising at the fastest pace in four months. However, input cost inflation was at its lowest in 18 months. Ahead, UK industrial and manufacturing production figures are both due on Friday alongside the latest trade numbers. We also expected comments from the Bank of England’s Haldane on Tuesday.


It has been a relatively quiet start to the week for the Dollar, with the Dollar Index inching higher versus Friday’s close, hovering around the 90 level. Trump continued his protectionist rhetoric over the weekend, threatening European car makers with a tax on imports if they press ahead plans to retaliate the steel/aluminium tariffs. Responses elsewhere will be closely watched this week amid fears of a global trade-war.

On the data front, attention on the service sector to start the week with Markit service PMI and ISM non-manufacturing both due this afternoon and both expected to show an improvement on the January reports. Focus then turns to later in the week with the ADP employment report on Wednesday acting the usual prelude to the US BLS jobs report on Friday where economists expect a healthy 190K jobs to have been created. At the Federal Reserve, Fed Chair Powell promoted a Dollar rally last Tuesday as he spoke to Congress and investors will be listening to see whether other FOMC officials share his upbeat view. St Louis Fed President Bullard speaks later today at 22:30 GMT, followed by New York President Dudley overnight, Kaplan and Bostic on Wednesday and Rosengren and Evans on Friday.


The Euro has made it through the weekend relatively unscathed despite some large political risks. Investors would have welcomed news that German Chancellor Merkel will see a fourth term after the SPD voted in favour of a coalition deal. Italy will be more of a concern however as exit polls suggest a hung parliament amid gains for the anti-Euro parties. Looking ahead, the ECB policy decision on Thursday will be the focus. According to the minutes of the January meeting, “some members expressed a preference for dropping the easing bias regarding the APP from the Governing Council’s communication”.

On Thursday, a sources report did suggest a small tweak in their communication could be discussed this week which could mark a turning point in their policy stance. Data wise, it has not been a great start to the week –  Euro Zone Service PMI was revised to 56.2 in February from the flash reading of 56.7 while Sentix investor confidence dropped to 24.0 (f/c. 30.9) from 31.9. Retail sales were mixed. Euro Zone Q4 GDP figures are out on Wednesday, followed by German factors orders on Thursday and industrial production on Friday.


The Japanese Yen finished last week on the front foot, boosted by comments from the Bank of Japan Governor Kuroda who suggested they could begin an exit from their easy policy stance in fiscal-2019. It is unlikely we will hear from Kuroda again this week before Friday’s policy decision where little changed is expected. Before that, a few data releases to note including GDP on Wednesday, household spending on Thursday and wages on Friday.


It does not appear to be the busiest week for the Swiss Franc although CPI figures due tomorrow will likely be key with economists expect a positive reading after January -0.1% MoM decline. Unemployment figures followed on Thursday where the seasonally adjusted rate is expected to drop to 2.9% from 3.0%


Tomorrow, we will get the release of Australia’s current account balance data, retail sales data, as well as the RBA’s monetary policy decision. RBA Governor Lowe due to speak later Tuesday evening with key GDP data due on Wednesday. Later in the week on Thursday we get the latest look at Australian trade data. Ongoing trade war worries also seen as a potential negative for the Australian dollar.


The Canadian dollar was the weakest of the major currencies, losing almost 2% against the US dollar and was the second weekly decline and the fourth in the past five weeks. Key events likely to impact CAD trading is due on Wednesday when we get Canadian central bank rate decision where we are expecting the BoC to leave rates unchanged. We get two Canadian central bankers speaking on Thursday (Poloz and Lane) with the Canadian unemployment report due on Friday


The Kiwi is subdued in Monday trading, testing closer to Friday’s low of 0.7218. The NZD/USD pair heads into the new week fighting the slide that is a result of possible global trade wars as a result of Trump tariffs. There are no significant macro-economic releases due this week with all eyes on any further developments on the Global trade situation for further indications for NZD moves


The Swedish Krona has got off to a mixed start this week, losing minor ground versus the US Dollar but gaining against the Euro and the Norwegian Krone. Data impulses were soft as Service PMI dropped to 59.0 from 61.3. Investors will be hoping for better reading from industrial production figures due tomorrow and household consumption on Friday.


The Norwegian Krone has begun the week on the back foot, paring back some of Friday’s gains where the Finance Ministry lowered the inflation target to 2.0% from 2.5%. Focus this week will be on Friday’s inflation report where headline CPI is seen rising to +1.8% YoY from +1.6% in January. Manufacturing production figures are also due on Wednesday.


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