Market Brief: Brexit back in the spotlight

11 Sep 2018

Lewis Thorn

Dealing team

After what appeared to be a Christmas break as far as Brexit headlines go it would only seem natural that the pound would begin the week on the back foot. 

Today's data releases
  Key levels
10:00 EU GDP + consumer confidence   Support Resistance
15:00 US consumer confidence GBP/USD 1.3942 1.4285
15:30 US personal income GBP/EUR 1.1305 1.1406

Market overview

News emerged yesterday that the EU has adopted a position on any potential Brexit transition
agreement. The EU will offer the UK ‘status quo transition without institutional representation’ until the end of 2020. However the sticking point is understood to be the fact the UK will not be able to object to any new EU laws struck during this period.
 
In other Brexit related news a leaked government document has revealed the UK economy will grow more slowly outside the European Union regardless of what deal is struck with Brussels. Whitehall analysis has found growth over the next 15 years could be 8% lower than if the UK stayed in the EU. Meanwhile the international trade secretary Liam Fox has warned some leave campaigners that they will not achieve their vision of Brexit.

Also on the UK stage, note that that BoE Governor Carney is set to give evidence to the House of Lords Economic Affairs Committee at 3.35pm today. Ahead of the 8th February Bank of England Inflation Report, it will be worth closely scrutinising his words, for last minute policy steers before the BoE heads into its pre-meeting blackout period. The House of Lords will also be a focus on the Brexit front today, with the EU Withdrawal Bill up for second reading in the upper chamber. The Labour Party said on Sunday it plans to support about 20 amendments to the Withdrawal Bill. 

The day ahead

With very little on the data front today markets will be looking towards tomorrow’s Fed announcement for direction. This is Janet Yellen’s last meeting as Fed Chair before her successor Jerome Powell takes the chair in time for the March meeting. The expectation is for no change in policy and with no economic projections published this time, nor will there be any press conference. As such the focus for all policy messages will be on the statement accompanying the decision. Nevertheless investors will still be trying to gauge the likely timing of the next rate move and how many rises we can expect through 2018 as a whole. The ‘dot plot’ path factors in three hikes; this week’s policy statement will provide us with the most up to date assessment of Fed’s views on economic momentum, on inflation and on the health of the labour market. It will therefore guide markets on the likelihood of the Fed sticking with this three hike view when it comes to its next ‘dot plot’ and forecast reassessment in March.
 
Note finally that from across the pond, we have the State of the Union address from President Trump at 9pm Eastern Time tonight. Currency market participants should have plenty to chew over from a USD perspective, with the President expected to use the event to celebrate his tax reforms, plus gains in US equity markets that have been witnessed in his time in office. However the speech might also provide a pertinent reminder that the US government shutdown can has only been kicked as far as February 8th. The President is expected to discuss the thorny issue of immigration which has served as a road block to a longer-term spending bill being agreed so far. 

Thought of the day

Tonight Donald Trump will deliver his first formal State of the Union address to Congress. After assuming the Presidency just over a year ago, Mr Trump will speak before Congress and hopefully provide some insight into his legislative agenda. President Trump has often flouted normal Presidential decorum through his outbursts on Twitter though in his speech to congress last year, he was praised for a much more conciliatory and optimistic tone. It will interesting to see which Donald Trump speaks tonight! In the President’s first year in power, stock markets have performed strongly hitting record highs but the US dollar has not had nearly as good a year. Over his tenure the dollar has fallen 10.5% against the euro and 8.9% against the pound. Just last week there seemed to be difference of opinions in the US administration in whether they would prefer a stronger or weaker currency, so tonight may shed some light on the situation and could provoke some volatility off the back of the speech. Call your Investec dealer today on 0800 055 6339 to get their thoughts on the dollar’s path or look to place a market order to capitalise on any moves overnight.

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