15 Dec 2017

Market Brief: Will Europe open the door for the next stage of Brexit talks?

Sana Hanassi-Savari

Dealing team

On central bank meetings yesterday, the ECB’s Governing Council kept its key policy rates unchanged as expected.

Today's data release
  Key levels
10:00 EU trade data   Support Resistance
13:30 US Empire Manufacturing GBP/ USD 1.3220 1.3520
14:15 US Industrial Production GBP/ EUR 1.1135 1.1565
Market overview

On central bank meetings yesterday, the ECB’s Governing Council (GC) kept its key policy rates unchanged as expected – the deposit rate stays at -0.40%; the refi rate at 0.00%; and the marginal lending rate at +0.25%. There were no changes of note provided in the summary that accompanied today’s decision, only that the GC confirms it will halve the pace of asset purchases to €30bn a month from January onwards and that it expects the key policy rates to remain at their current levels well past the conclusion of its QE programme.

In the UK, the MPC left rates unchanged. Bearing in mind that the committee raised interest rates for the first time in more than 10 years last month, the universal expectation was that members would sit back and assess the direction of the economy. This was indeed the case. Although this was a relatively ‘quiet’ meeting, members discussed two significant events which had taken place since the committee last met in November. First, the MPC acknowledged the expansionary nature of the Budget. Its conclusion was that it would add some 0.3% to GDP over three years and 0.1% to inflation. Second, the progress made in phase one of the UK/EU Brexit negotiations would reduce the likelihood of a ‘disorderly’ exit from the EU. The committee agreed to consider the latter point more carefully at its next meeting in February.

Away from central banks, the Euro area had another set of super strong flash PMIs. The December manufacturing print for the Euro area came in better than expected 60.6 (vs. 59.7 expected). That is the highest reading on record since 1997. Germany had its highest manufacturing reading on record; the figure surged 1.1pts to 63.3 (vs. 62.0 expected). In the US, the November retail sales and manufacturing PMI both came in above expectation, whilst the services and composite PMIs were both below consensus. The UK’s November retail sales (ex-fuel) was well above expectations and rose 1.2% mom (vs. 0.4% expected) to the highest in seven months – with the strength partly due to the Black Friday discounts.

The day ahead

Looking at the day ahead, the conclusion of the EU Council Summit will be the main focus for markets, where EU leaders are expected to endorse Brexit talks moving to the next stage. Away from that we have a quiet day ahead in terms of economic releases. We have the October trade data for the Euro area, along with the December Empire State manufacturing survey and November industrial production prints in the US due out.

Thought of the day

It's Christmas jumper day today - the annual tradition this year marks the fact that there are only 10 days until Christmas (where has the time gone)! As per usual, our trading floor has embraced all the bells, whistles, baubles and tinsel (!) with some of the wackiest and most colourful Christmas jumpers on show. Whilst the spirit of Christmas has certainly arrived at Investec, we are by no means taking our eyes off the market for you. Please feel free to give us a call should you have any questions on the market. Whilst our Christmas Jumper colours are a bit of a dog’s (sorry, reindeer’s) dinner, our market colour certainly isn’t!

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