Yesterday was a busy day for data releases. Starting at home, there was a bit of a mixed bag - the UK Nationwide house price index came in weaker than expected printing -0.3% m.o.m. versus the +0.1% expected. UK Mortgage approvals, however, beat expectations coming in at 67.5k versus 62k in January. The UK Manufacturing PMI was slightly higher than expected (55.2 versus 55.0 consensus). Although the manufacturing PMI was marginally better than forecast and still implies an expansion in the sector, it suggests a modest step down in the pace of manufacturing growth, with the index at an eight-month low. Overall the UK releases did little to help the pound as Brexit concerns, on the back of the EU’s first draft of the Brexit Treaty, weighed on the pound.

Stateside data was also mixed - the ISM manufacturing activity index beat consensus (60.8 versus 58.7 expected) whilst the final US Manufacturing PMI fell to 55.3 in Feb from 55.5 in January. We also had the Fed’s preferred gauge for inflation out yesterday, the Core PCE inflation data, which came in at the consensus of 1.5%, still below the Fed’s 2% target. New Fed Chair Jerome Powell’s testimony to the Senate Banking Committee was broadly in line with the remarks he gave to the House Financial Services Committee on Tuesday. He struck an upbeat tone on the economy which keeps the door open for four rate hikes this year.

In Europe we also had final manufacturing PMIs out -  for the Eurozone at large, the PMI was little changed on the earlier estimate – recorded at 58.6 (flash 58.5).
In other news, President Trump seems hell-bent on sparking a trade war, saying he would impose hefty tariffs on imported steel and aluminium to protect US producers. He has proposed a 25% tariff on steel and a 10% tariff on aluminium. This helped trigger a sharp sell-off on Wall Street yesterday and risks a retaliation from major trade partners like China, Europe and Canada. 

The day ahead

As for the day ahead, the data calendar is relatively light, however keep an eye out for the UK Construction PMI at 09.30, the final US University of Michigan Consumer Sentiment Index at 15.00 and of course over the weekend, the Italian election. Bank of England Governor Mark Carney will also be speaking today at 10:00 at Bloomberg's London HQ. Don't expect much in the way of monetary policy though; instead, he will be giving a lecture on the future of money which will touch upon cryptocurrencies among other things. As always, the subsequent Q&A should be closely watched for any clues on the direction of monetary policy.

As for today’s main event - all eyes will be on Theresa May as she delivers her third major Brexit speech titled "Our Future Partnership" at 13:30 today at Mansion House, following those in Florence and at Lancaster House. She is expected to say that she wants "the broadest and deepest possible agreement" covering more sectors and co-operating more fully than any current free trade agreement. She is also expected to outline five tests for the final Brexit deal. Much has been made of this speech, with Cabinet members suggesting it will provide the EU with the clarity that it has been seeking about what kind of future trade relationship the UK is aiming for. Nevertheless, one issue that the Prime Minister is not expected to address is a solution to avoiding a “hard” Irish border, the key stumbling block at the moment after the European Commission’s draft Withdrawal Treaty. Any detail on this has the potential to certainly move markets, so watch this space.

The Bank of England paper £10 notes are officially no longer accepted at shops from today. Officially, any bank, building society or retailer is now within their rights to refuse an old paper £10 note. Only the Bank of England in London will accept them forever. At the last count, the Bank of England estimates that 211 million of these old notes are unreturned. If the recent UK weather has stopped from going out to spend or exchange your old £10 notes, then do not worry, it is not a hard stop. Major banks and the Post Office have said they will continue to accept deposits of these notes from their own customers, so there should still be a softer transition.

Today PM May will provide us with her Brexit vision. Will her speech include any commentary on the recent Northern Ireland ‘hard border’ headlines? What will be the EU’s response to her speech? Will we get our desired soft transition? To discuss the recent Brexit developments or your FX hedging ahead of PM May’s speech today, then call the Dealing desk today.