Duncan Donald

Mon, Mar 4

KYLIN TALK | Weekly Markets Update 04.03.2019

The disparity between the UK public opinion and the financial markets continues this week as Parliamentary and public opinion of Prime Minister Theresa May’s Brexit deal remains problematic but the pound shrugs it off to be the strongest performing G10 Currency this week.  This came as the optimism of an extension of Article 50 and the Brexit Deadline seemed more than likely, as the PM in a face-saving step opted to permit a parliamentary vote on the extension by March 13th, should her deal again fail to obtain the required votes on March 12th. Whilst it is noted that some parties are softening on May’s deal it remains incredibly unlikely to pass with the secondary vote on extension being the most likely outcome.

Whilst the PM still hopes that amends and restructure of the withdrawal agreement can be sought from the EU there was a rather scathing tone from leading EU figures not least Michael Barnier the EU Brexit negotiator.  Naturally markets are reacting positively to the likelihood of a No-Deal Brexit looking less likely at month end with the GBP/USD rate reaching new highs of 1.3350 and EUR/GBP breaking significant support to reach lows of 0.8530 before pulling back slightly.  We have the Bank of England’s monetary policy meeting on Thursday which is expected to be a non-event, with rate setting likely to be led by definitive outcome of Brexit.

In the US the continuous positive narrative of trade discussions persists and whilst Trumps discussions with North Korean leader Kim Jun Un stalled the USD traded firmly. Slightly disappointing ISM and then PMI (Purchase Managers Index) data on Friday took the shine off what had been a strong week. We have become very used to strong US data over the last year and PMI data is often regarded as one of the fastest to show a signal of a change in the economy whilst other leading indicators can often lag. Late on Friday we heard from the Federal Reserve board member Bostic who signaled that the FED would be swift to react to any downturn in the global and domestic economy. President Trump took to the news wires to again attack the Federal Reserve claiming the US Dollar was “too strong” despite claiming credit for a strong Dollar earlier in his tenure.

It was a tough week for the Canadian Dollar as GDP fell which was thought to be reflective of the fall in energy prices towards the close of 2018 which led to the fall of nearly a cent Canadian Dollar, taking the USD/CAD rate to just above 1.33. It’s a very big week for Canada this week with a heavy data calendar, the most notable will be the interest rate decision which comes on Wednesday, there was a small percentage of participants forecasting the probability of a 25 basis point hike from the current 1.75% but last Fridays GDP numbers could push that probability lower.

It’s been a volatile few weeks in Australia as the impacts of their potential to open the door to lower interest rates. Whilst this was just them stating they would only react to stem a significant downturn should trade negotiations take a turn for the worse, we come to their interest rate setting meeting on Monday night. It is broadly forecast that rates remain at 1.5%, but RBA Governor Lowe’s post policy meeting statement will likely be the volatility generator as the market awaits guidance on the next step for Australian Interest rates.  We also hear from the European Central Bank on Thursday where similarly no movement is expected keeping interest rates historically low as the Eurozone deals with political struggles in France, Italy, Greece and of course Brexit.


The Week Ahead

Monday – Starts with the only meaningful data of the day in Australian building approvals. Latterly we get lower impact news with Spanish unemployment, Eurozone Investor Confidence, UK Construction PMI and Eurozone PPI. In the afternoon session we have US Construction spending.

Tuesday – Follows Monday’s theme with the primary data on the day coming with the Australian interest rate decision at 3:30am UK time. As mentioned above expectation for rate movement is limited but the tone of the statement will be pivotal. Services PMI out of the UK comes at 9:30am. In the afternoon session we have us ISM Non-Manufacturing PMI. IN late afternoon UK time Mark Carney the Head of the Bank of England gives a speech which is followed in the evening by the RBA’s Lowe talking ahead of Australia's GDP

Wednesday – A busy day for Canada which starts with their Trade Balance and Labor Productivity Data. This is followed by the Bank of Canada interest rate decision which is forecast on hold at 1.75% and their policy statement. Weekly crude oil inventories 30 mins later will also bear impact on the Canadian economy.  There are some Central Bank Speakers later in the day with the Federal Reserve's Williams and UK MPC member Saunders speaking.

Thursday – Australian Retail Sales comes early in the session. This is followed by Eurozone employment data in the morning. At 12:45pm, we have the ECB Interest rate decision where they are expected to remain on hold. As always with the ECB Mario Draghi's statement at 1:30pm will give market direction.

Friday – A busy end to a busy week with Japanese Average Earnings and Chinese Trade Balance in the Asian Session.  UK Consumer Inflation Expectations are at 9:30am. At 1:30pm we have the US and Canadian Employment Data with the US Payrolls as always likely to be the main markets driver of the day.