Newsletter – 16th January 2019

Morning Bulletin

Yesterday

  • Perhaps unsurprisingly Sterling was the worst performer in FX space during yesterday’s trading in the run up to the evening’s much anticipated meaningful vote on UK PM Theresa May’s Brexit Deal. Despite general consensus that Mrs May’s deal would get voted down it certainly appeared markets and investors remained cautious with the Pound sold off as a result.
  • By 6pm the Pound had declined by as much as 1.2% against the US Dollar, trading down to an 11-day low of 1.2668. Losses against the Euro were also substantial but somewhat limited in comparison, down -0.51% at 1.1159.
  • Eurozone Trade Balance 15.1Bn (13.2Bn Exp)
  • US PPI m/m -0.2% (-0.1% Exp)
  • Interestingly yesterday morning Germany’s Foreign Minister Heiko Maas suggested that should Mrs May’s deal get voted down the EU could be prepared to hold more talks with the UK but also added ‘I doubt very much the agreement can be fundamentally reopened. If there were a better solution, it would already have been put forward’.
  • Speaking yesterday afternoon ECB President Mario Draghi said the Eurozone’s economy is weakening more than expected and that is still requires ‘significant’ support for the central bank. This will undoubtedly have pushed back markets expectations of any potential rate rise in 2019.
  • One of the US Federal Reserve’s most prominent advocates of hiking rates appears to have done a complete U-Turn. Speaking yesterday afternoon Fed Member Esther George made a case for the Fed to remain patient and cautious of raising rates any further for fear of choking off economic growth.
Overnight

  • Only one place to start and that was of course the unprecedented and historic defeat of UK PM Theresa May’s Brexit divorce deal. Mrs May’s deal was widely expected to suffer a comprehensive defeat but the margin was perhaps greater than many had forecast with the PM losing by 230 votes (432 to 202).
  • Oddly having been hammered all day in FX space the Pound rebounded strongly following the result, making back all the ground it had given away during the day’s trading. In fact GBP/EUR traded to it’s highest level since late November at 1.1291.
  • Again to nobody’s surprise, and perhaps simply to appease his own party and the wider parliamentarians in opposition to the Government, Labour Leader Jeremy Corbyn tabled a vote of no confidence in the Government following the defeat. Mrs May has allowed the confidence motion to be debated in the Commons later today however it seems unlikely it would succeed. If there is one thing that would unite the Tories and their colleagues at the DUP at this point in time it would be retaining power at Westminster.
  • So what next for the PM? Well Mrs May has said she will now start cross-party talks in order to find some common ground or consensus on how the process can move forward, she will then present her next move on Monday.
  • European Council President Donald Tusk wasted no time once again reiterating his desire for the UK to remain a member of the EU. Tweeting earlier this morning Tusk said ‘if a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?”.
  • German Final CPI m/m 0.1% as expected
  • Japan PPI y/y 1.5% (1.8% Exp)
  • Japan Core Machinery Orders m/m 0.0% (3.3% Exp)
Today
  • As if today’s newsletter wasn’t UK-centric enough, this morning UK data will be firmly in focus with Inflation data due at 9.30am.
  • Also due to speak shortly before that is BOE Governor Carney. He will be addressing the Treasury Select Committee on the BOE’s financial stability report.

 

Currency Pair Interbank Rate % Change on Day
GBP/EUR 1.1281 +0.12
GBP/USD 1.2875 +0.13
EUR/USD 1.1412 -0.01
AUD/USD 0.7204 +0.06

 

Time (GMT) Region Data Release Forecast Previous
09.15 GBP BOE Gov Carney Speaks
09.30 GBP CPI y/y 2.1% 2.3%
09.30 GBP PPI Input m/m -1.7% -2.3%
09.30 GBP RPI y/y 2.9% 3.2%
13.30 USD Import Prices m/m -1.3% -1.6%
15.00 USD NAHB Housing Market Index 57 56
19.00 USD Beige Book