The Pound rallied yesterday after the UK and EU agreed terms for a Brexit transition period. Sterling rebounded as news reports suggested an agreement was close ahead of a joint press conference by the U.K’s Brexit Secretary David Davis and his EU Counterpart Michel Barnier. Barnier went on to confirm a “decisive step” was made in the international draft agreement that will define the UK’s exit from the EU before confirming an agreement had been reached on citizens’ rights and the exit bill. And even though the two sides were unable to reach an agreements on what is largely viewed as the biggest stumbling block, it seems likely that London, Dublin and Brussels will sit down next week to discuss a backstop solution to the Irish Border issue. The news was met with great relief by business leaders who openly came out to praise the government once the deal was struck. Both the Institute of Directors and The British Chambers of Commerce welcomed the breakthrough agreeing that the deal was significant for businesses across Europe to help them plan ahead with greater confidence. GBP advanced back into the 1.40s against the USD, its highest level in a month, following the news. 

Elsewhere, the Euro rallied off the back of a Reuters report that the ECB policy makers are said to be shifting their debate to the expected path of interest rates, amid a broader agreement that QE should end this year. The report suggested policy-makers are comfortable with market forecast, including a rate hike by mid-2019, and the debate is increasingly about the steepness of the rate path thereafter. EUR/USD rallied off an overnight low of 1.2258 back into the 1.23’s.

In equity markets technology shares were heavily sold as investors mull the potential for weaker earnings growth among companies that have led gains over the past year. Concerns surrounding the Federal Reserve’s policy meeting on Wednesday, where focus will be on whether policy makers signal an acceleration in interest-rate hikes, along with potential tariff announcements by the Trump administration on China, saw stocks remain under pressure.

Reports suggest the Trump administration are planning to impose tariffs worth as much as $60bn on Chinese products as early as this week. The reports come after U.S. Trade Representatives lead an investigation into what they perceive as intellectual property theft from US companies by China.

The day ahead

Today we have UK inflation figures for February released at 9:30am. Alongside Brexit related news, the inflation figures could be an important driver of Sterling, with our forecast for the targeted inflation measure to drop from 3.0% to 2.7%, its lowest level since April 2017.

Thought of the day

Wishing all our readers an especially happy day as today is in fact the International Day of Happiness! First celebrated in 2013, the concept of a day to celebrate happiness was introduced by the United Nations and is celebrated across the 193 UN member states. However, a report suggests that here in the UK, only 29% of Britons think the UK is a happy place to live. Rudeness, weather, queues and litter were cited as some of the reasons for unhappiness with politics also being a popular choice to complain about. Here at Investec, we think there are plenty of reasons to be happy: not least that the UK looks to have taken a big step towards agreeing a transition deal with the EU which should give some certainty to businesses. If you would like to discuss the details and what else could move the markets this week then give your Investec dealer a call on 0800 055 6339.