News & analysis

GBP

The degree to which Theresa May is running down the clock would definitely be worth a yellow card in football now she most likely needs to seek a 2-month extension. Although, for now, the only consequence is a higher trading pound sterling. GBP is currently taking this news positively as it would diminish the chance of the UK crashing out of the European Union on the 29th of March. This optimism may come back to haunt markets later, however, as May declared that another meaningful vote will be in diaries before March 12th. May’s majority in Parliament, especially with the new Independent Group, will be tested yet again prior to the March deadline. But for now, a chaotic no-deal exit is still on the table for the end of March. On Wednesday, the House of Commons gets to vote on two amendments that are likely game changers. The Cooper-Letwin amendment would automatically extend the 29th of March Brexit date if there is no deal approved by Parliament by mid-March. The Labour party Kyle-Wilson amendment proposes to vote in favour of May’s deal, under the condition that the electorate has the final say on whether or not to accept the deal in a referendum. Apart from politics, Bank of England’s Mark Carney’s Inflation Report Hearing on Tuesday bears the biggest potential to move markets.

EUR

The single currency bottomed the ranks of the G10 currencies on Friday after the Ifo German Business Climate survey indicated the woes for Europe’s largest economy have not yet come to pass. As sunny spring weather swept over Europe in recent weeks, the sombre expectations index dropped further to 93.8, showing rather frosty expectations among business. Together with the German Purchasing Manager Indices that came out on Thursday, this hints that whatever happened to the German economy in Q3 and Q4 – mostly in the manufacturing sector – may have gotten even worse in Q1. This week the Bundesbank President and European Central Bank’s arch-hawk Jens Weidmann speaks on Wednesday, which begs extra attention as other ECB hawks voiced dovish squawks recently. Datawise the week really gets going on Thursday, with Eurozone’s four largest economies releasing their preliminary inflation data, followed by the Eurozone-wide reading on Friday, together with final manufacturing PMIs.

USD

Trade optimism keeps filtering through markets after President Donald Trump announced an extension of the deadline to raise tariffs on Chinese imports beyond the end of the week. “Substantial progress” in US-China trade talks has been cited in newspaper headlines, with China agreeing to purchase an additional 10 million metric tons of American soybean and committing to yuan stabilization. On the back of this, the US dollar has faced some weakness, as risk-on moves start to flare up. This week´s events will put it to the test, however, with Trump meeting Kim Jong-Un in Vietnam for a second summit on the North-Korean nuclear program. Also, Federal Reserve chair, Jerome Powell, will face both congressional chambers to testify on the state of the economy, while presumably shedding some lights on the hiking cycle agenda and the pace of the balance sheet runoff; issues that were broadly discussed in last week´s FOMC meeting minutes as well. Additionally, markets will be expecting the advanced Q4 growth and inflation releases on Thursday 28th, which justify some extra attention as the first and second reading are published simultaneously due to a delay caused by the government shutdown.

CAD

The loonie topped the ranking of G10 currencies last Friday after mixed Retail Sales data weren’t enough to shake markets out of their good mood. December Retail Sales shrank by 0.1% on a monthly basis, yet outperforming market expectations of a deeper 0.3% contraction and beating the 0.9% reduction in November. Excluding auto sales, however, the figure underperformed expectations falling by 0.5% from a 0.3% foreseen reduction, although above the 0.7% shortfall in the previous month. The currency might have also be supported by the 1.2% rise in WTI oil prices, although the crude oil market has started the week in the back foot again. This week will bring a busy agenda for Canadian markets, with the release of January inflation scheduled for Wednesday 27th and December GDP and February Markit Manufacturing PMI for Friday 28th.