Beast from the east

01 Mar 2018

Beast from the east doesn't affect us in the least

Service as normal: Our sincere apologies for the cheesy headline, however we would like to advise that the Treasury team will be open for business as normal both today and tomorrow, in case the storm from Theresa May’s much anticipated speech tomorrow causes more damage than Storm Emma.

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In short, and excuse me for not having read though the entire 118 pages of legal text properly but at first glance it appears that the EU draft (released yesterday) is not designed to arrive at a quick agreement with the UK on negotiations and will heighten tensions within the UK. One key issue is that it envisages that Northern Ireland remains in a customs union with the EU to avoid a ‘hard border’ between NI and the Republic. It also states explicitly that the ‘transition period’ should last until December 2020, not longer or open ended, as requested by Westminster. It also speaks about EU entrants during the transition period being granted permanent rights of residency in Britain, in contrast with Westminster’s position. This is a draft and subject to negotiation, but it shows how far apart the sides are. As mentioned on the mic earlier, sterling is beginning to weaken. To add fuel to the negative sterling sentiment, UK PM, Theresa May said yesterday in parliament that she won’t be changing her stance on the customs union which put the boot intro any softer Brexit hopes. All eyes are now firmly on her (third) major Brexit speech, due to be delivered tomorrow.

Market Orders a useful tool as EURGBP swings possible

The Pound has been on the back foot since the EU launched their proposals for the EU/UK Withdrawal treaty. Although the details of the 118 page documents are still being digested, a few points have made instant headlines, particularly the EU’s back-up proposals on the border between Northern Ireland and the Republic. Theresa May and the DUP’s immediate and strong rebuke of even the mention of no border between the North and South have served as a reminder of how far apart the UK & EU’s negotiating positions are. EURGBP is almost 100 points higher since yesterday morning, while GBPUSD has dropped over 300 points from 1.4050 to 1.3750. With Theresa May’s expected to give a speech outlining the UK’s proposed approach the volatility could continue, particularly as she not only has to deal with opposition from the EU, but also from both sides (Brexiteers and Remainers) in her own party. Furthermore the weekend also see’s both the Italian election and the German SPD party announce the result of their vote on whether to go into coalition with Angela Merkel’s CDU party (or potentially force Germany to return to the polls).

Such a series of major events will likely lead to further volatility, in in such cases, Market orders can be a useful tool to take advantage of market moves, particularly if the inclement weather is preventing you from making the trek into the office.

Economic Releases

09.00    EU    Manufacturing PMI

09.30    UK    Manufacturing PMI

10.00    EU    Unemployment (Jan)

13.30    US    PCE inflation (Jan)

15.00    US    Fed Chair Powell delivers semi-annual testimony to Senate