Good morning and welcome to the second week of 2018! First, a quick recap of Friday’s non-farm payroll number which came in below expectations at +148k. The consensus had been for +190k jobs added, so a marked undershoot here. There were also some net revisions to the prior months which were modestly unfavourable, reducing the gains in October and November by a net 9k. The unemployment rate held steady at 4.1% and the pay growth figures also brought a dovish slant to the release with pay growth remaining stuck in the 2.4%-2.6% range as it has been since March 2017. Following the release, the USD softened slightly but has since regained some composure.

In British politics, the expectation is that we will see a Cabinet reshuffle this week, perhaps as early as today. The reshuffle will allow Prime Minister May to deal with the loss of her de-facto Deputy Prime Minister Damian Green before Christmas. She might also look to make broader personnel changes seeking to re-invigorate her government for a crucial year of Brexit talks with some reports saying Foreign Secretary Boris Johnson may move to more a Brexit related role. However, more recent media reports have indicated that her foreign, finance, interior and Brexit ministers would keep their jobs.

In the US, the stopgap spending bill is set to expire on the 19th January which means that we can expect a ramping up in talks as the Republican leadership seeks to find an agreement on a spending bill to avoid a government shutdown from the end of the following week. Discussions this year appear to have been in a positive spirit but there are a number of issues to be agreed upon. Unlike the tax law which was constructed to be passed with a simple majority, the Republicans will need to secure 60 votes in the Senate to pass the spending bill. This means they will need Democratic support and negotiators will have to work hard through next week to move towards a bipartisan accord. 

The day ahead

The economic calendar has more of a back to business feel to it after the festive break, with more data releases scheduled and activity picking up on the political front as well. Data-wise, the UK run includes the BRC retail sales monitor for December and other indicators for 4th quarter GDP in the form of the November industrial production and construction output figures. The US run includes CPI inflation numbers and retail sales figures for December while the Euro area has EU19 industrial output figures and the ECB’s account of its December policy meeting. It is also a relatively heavy week for China’s economic releases. CPI inflation figures are due mid-week and trade figures are out at the end of the week. 

Thought of the day

Over the weekend we saw former Liverpool footballer Philippe Coutinho seal his dream move to Barcelona. The 25-year-old became the third most expensive signing of all time, behind Neymar and Mbappe joining the Spanish giants for £142,000,000! The same move almost happened in the summer for around £100,000,000 but Liverpool managed to convince him to stay before finally giving in to Barcelona’s relentless offers. Barcelona’s purchase of Coutinho not only cost a significant amount more due to Liverpool’s negotiation skills, but at the time of bidding in the summer GBPEUR was trading at the lowest point since 2009, making the expensive transfer cheaper. Since then GBPEUR has moved 5% higher, I am sure this has not hurt Barcelona’s bank but had they have hedged this exposure in the summer they would have been in a substantially better place. Where will GBPEUR head this year? Our Economists suggest 1.1500, if you would like to discuss ways of hedging your FX exposure please contact your Investec Dealer on 0800 055 6339. Further to this, we have a host of structured solutions that can either protect or outperform, or do a combination of both. Please speak to your FX dealer today to ensure you’re ready to retaliate to hidden and dormant FX (nuclear!) threats this year.