Sterling continues to battle with Brexit uncertainty after the Prime Minister wrote to Donald Tusk last week asking for an extension until June 30. A special Article 50 summit will commence on Wednesday where the EU27 will jostle the idea of a short-extension up to the European elections or a longer extension most likely 12-months + in length. Donald Tusk has already suggested a longer extension of around a year is the most viable option, with May stating that the UK is preparing for European elections in May. The Parliamentary calendar is light this week with much of the focus on Brussel’s willingness to allow an extension prior to this week’s deadline at 23:00 GMT on Friday. Meanwhile, cross-party talks continue in Westminster with May reportedly softening to Labour’s stance of a customs union. This week the data calendar is focused around Wednesday’s release of February’s GDP and production data. The UK economy is widely expected to halt its month-on-month growth in February as suggested by the latest batch of PMIs due to Brexit uncertainty taking its toll.
The euro narrowly avoided falling to March’s 21-month lows against the US dollar last week, but ongoing concerns about the Eurozone’s macroeconomy prevented anything resembling a serious rally. In particular, German Factory Orders plunged by 4.2% in February, in a reading that is practically unprecedented outside of a recessionary environment. The ECB will have to grapple with this data point, as well as some more optimistic data from the Eurozone services sector when it meets this Wednesday. The data calendar is jam-packed for the euro this week, with an Article 50 summit on Wednesday and an EU-China summit on Tuesday, where Chinese Premier Li Keqiang is expected to arrive at 13:00 local time. This morning saw the euro start the week off on a positive note, with Germany’s February trade surplus surprise to the upside at €17.9bn, while the Sentix Investor Confidence figures will be released today at 09:30 GMT.
The US dollar continues to stave off analysts’ expectations of weakness in Q1 as the DXY index resides near recent highs. A positive Non-farm payroll figure on Friday saw the dollar make broad gains against the whole of the G10 currency board. 196,000 jobs were added to the US labour market in March but a dip in the wage growth measure, Average Hourly Earnings, to 0.1% MoM caused some room for concern. The current path of employment growth should be set to continue, with analysts expecting the headline unemployment figure to fall to 3.5% from 3.8% by the end of the year. This week, the US data calendar is flurried with inflation and trade releases, but investors will be zeroing in on the release of the latest FOMC meeting minutes. With the Federal Reserve shaking markets substantially after the extensive dovish turn in March, investors will keenly await further clarity on what has driven the central banks latest decision. Fixed Income markets currently suggest a 56% probability of a rate cut this year, with some Fed members recently fuelling speculation over 2 cuts in 2019.
The loonie loosely followed crude oil prices higher on Friday, after a week of losses driven by ongoing concerns about the economy. Friday saw the release of mediocre jobs data, which showed total employment falling by 7,200 jobs in March, after a massive expansion in February. Hourly wages also beat expectations to rise by 2.3%. Today will see the release of Housing Starts and Building Permits at 13:15 BST and 13:30 respectively, and later in the week OPEC will meet on Thursday.