05 Feb 2018

Market Brief: Brexit to take centre stage this week

Kevin Musisi

Dealing team

There was talk over the weekend of Theresa May being ousted as she fails to unite her party with a common vision of Brexit – in particular whether the UK will look to remain in the customs union.

Today's data releases
  Key levels
09:30 UK services PMI, composite PMI      
10:00 EZ retail sales   Support Resistance
14:45 US Markit services PMI, composite PMI GBP/USD 1.4013 1.4343
16:00 EZ ECB's Draghi speaks GBP/EUR 1.1228 1.1508
Market overview

Last week’s big release was the US Non-farm payrolls which showed that 200k jobs were created in the US economy last month against an expected 180k, while the unemployment rate was unchanged at 4.1%. The key takeaway however was earnings growth accelerated to 2.9% YoY, the highest since May 2009. Markets quickly grabbed onto the robustness of the pay growth figures and the prospect that these imply a more aggressive Fed tightening path. The dollar soon turned on Friday afternoon as GBPUSD went into the weekend at 1.4130, a cent down on Friday’s open. The trend continues after the weekend and GBPUSD continues to hover around the 1.41 mark with the dollar further bolstered by the Fed’s Kaplan’s hawkish comments in which he noted that “I think the base case for 2018 should be three (rate hikes) - it could be more than that, we’ll have to see”. Sticking with the Fed, Jerome Powell takes charge of the Fed today once he’s been sworn in but it will be a while yet till we start to see how the Fed view will look under his tenure.


Back home and once again there was talk over the weekend of Theresa May being ousted as she fails to unite her party with a common vision of Brexit – in particular whether the UK will look to remain in the customs union. Talk of a leadership contest will certainly be unwelcome news for Sterling. For now however, Downing Street has insisted that the UK will leave the EU customs union post-Brexit, with a government official saying that it isn’t government policy to stay in any customs union. Theresa May has faced calls to set out clearly what she wants to secure from the negotiations leading up to the UK's departure in March 2019. The PM and Brexit Secretary David Davis will meet Michel Barnier today ahead of the next round of negotiations getting under way later this week.

The day ahead

The main event this week will be Thursday’s Bank of England rate decision, minutes and inflation report release – otherwise known as Super Thursday. Ahead of that we look ahead today with UK services and composite PMI data due at 9.30am. We also have retail sales data from the EU shortly after at 10am before we cross Stateside for the US services and composite PMI data at 2.45pm. Of most interest however will likely be ECB President Draghi's comments in front of the European Parliament expected this afternoon.

Thought of the day

Yesterday the Philadelphia Eagles upset the New England Patriots in the Super Bowl with a score of 41-33. As our American friends were tucking into a few drinks and endless chicken wings during the breaks in the game, in the background would have been the infamous Super Bowl commercials. These year they set advertisers back a cool $5m per 30 second ad. Our favourite is the Doritos Blaze vs. Mountain Dew Ice ad featuring Peter Dinklage and Morgan Freeman, have a watch! Each year the cost of these ads goes up and up with some businesses now no longer able or willing to buy them. Likewise in 2018 so far GBP/USD has been heading higher and higher so if this could affect what your business does this year, reach out to your Investec dealer today on 0800 055 6339.

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