INSIGHTS

Duncan Donald

Mon, Apr 8


KYLIN TALK | Weekly Markets Update 08.04.2019

The theme of Brexit confusion continued and even broadened in the UK last week. As Prime Minister Theresa May continued to struggle to get any agreement on her Brexit deal. As the end of March deadline came and went, we are now heading towards an April 12th deadline for the UK to either show the European Union there is an agreeable plan for the UK or face crashing out of the EU with No-deal.

In the latest twist in what has become a monotonous saga, Theresa May the leader of the Conservative party has been forced to form an alliance with Jeremy Corbyn, the opposition Labor Party leader to consolidate the majority required to vote through her current Brexit agreement. Whilst the post meeting reports obtained from two party leaders were allegedly positive, the unrest within their parties is intensifying daily. Both leaders have seen their public and internal party popularity wane at increasing pace since the 2016 Brexit vote. The strength of leadership lays at the foot of the blame for the lack of progress to date.

Last week saw Parliament narrowly pass a vote that deters the UK from departing the EU without a deal, however, at this stage that vote is not legally binding. As things stand, the PM has until this Friday to gain extension for agreement from the EU or see a departure EU bloc with no trade deals in place, a situation that the markets had not been preparing for. Theresa May was then forced to write to the European Commission intending to obtain a short extension last week, however, the tone and guidance given by EU counterparts remains constant, that the UK must either get their house in order by the end of this week or accept a 1-year extension (with the ability to end sooner should the UK finally find agreement on a permissible deal in Parliament) which would unquestionably necessitate participation in the European Parliament elections, a situation that the UK PM wishes to avoid.

In light of the fact the Brexit progression is stalling, the Pound has started to suffer. The momentum that saw it as one of the strongest performers in Q1 has been lost as of Fridays close the GBP/USD around 1.3000 down over 2 cents as what seems a broadly optimistic market, bereft of good news is having to at least consider the worst case no deal Brexit scenario, and clings to the hope of a softer option. This week will of course be dictated by the developments in the negotiations, as core economic strength indicators become secondary, On Wednesday we see UK GDP, Trade Balance, Manufacturing and Industrial Production Data which should give a strong indication of the inherent damage caused by the continued uncertainty.

In the US, last week's Non-Farm payroll data bounced back from the disastrous government shutdown impared March release, with a positive number just short of 200k. The only slight blot in the data was a slowdown in Average Earning appreciation, but the disappointing number did just positive and some appreciation remains better than none. This certainly fuelled the current rally in the US Dollar in the face of a Dovish Federal reserve. It will be a big week for the US this week as the minutes for March’s Federal Reserve Open Market Committee (FOMC) are released. The shift in stance in the statement given by Jerome Powell after the last meeting, almost drawing a line under the possibility of further rate hikes from the FOMC in 2019 which would have sat well with President Trump who had been publicly critical of Mr Powell’s committee. Last month the FOMC members were actively vocalising concerns over global growth as their reason for the shift in stance, not Presidential pressure. On Friday, we heard from the President again as he saw fit to criticise the FOMC’s hiking cycle, publically damning the hikes seen in 2018 and suggesting that rather than quantitative tightening they should begin quantitative easing.

As well as the FOMC minutes, we will see the release of US Consumer Price Inflation data. Last month's data came in at 1.5%, with the recent uplift in energy prices, it is forecast that we see a print of 1.8% and whilst this forms a positive number, it still falls below the target of 2% set by the FOMC. In the global trade negotiations in what little that is being made public, it appears that progress is still being made and naturally this continues to be enjoyed by the stock markets. Leaders from China and the US will likely hold a summit at the end of May where the final and most sensitive details of a deal will be discussed.

In the struggling Eurozone which has seen data from the stronger of its members in Germany’s data take a significant turn, as well as ongoing concerns over Italy's budget, we hear from the European Central Bank and Mario Draghi this week. Following on from the ending of its asset purchasing scheme (Quantitative Easing), the hopes for this year were that we may see some traction back towards interest rate normalisation towards the end of the year. However with an evident slowdown in Eurozone growth for the above reasons, this not only seems unlikely but there could well be justifiable cause for a second round of QE to shore up monetary policy. The focus on Wednesday's ECB meeting will be on the statement delivered by Mario Draghi on the potential path of the ECB in this economic climate.  

The Week Ahead

Monday

Japan – Current Account Data as well as Consumer Confidence and Economic Sentiment.

Eurozone – First up is German Trade Balance then Sentix Investor Confidence

UK – Consumer Inflation Expectations

Canada – Housing Starts and Business Permits data.

US – Factory Orders

Tuesday

UK – BRC Retail Sales Monitor

Australia – Home Loan Data

Eurozone – Italian Retail Sales

US - NFIB Small Business Index and JOLTS Job Openings

Wednesday

Japan – Bank Lending, Core Machinery Orders and PPI year on year

Eurozone – French and Italian Industrial Production. At 12:45 we get the ECB rate decision followed by Mario Draghi’s speech at 1.30 pm

UK – Manufacturing Data and GDP at 9:30 am as well as Construction, Trade Balance and Industrial Production Data

US – Core and Non-Core CPI at 1:30 pm. In the evening we have the Federal Open Market Committee (FOMC) with rates expected to remain unchanged.  The post decision statement from Jerome Powell will likely be the pivotal factor

Thursday

OPEC Meeting commences with likely statements from global figureheads

China – CPI and RPI data, followed by money supply and New Loan data

Eurozone – French and German month on month CPI.

UK – RICS House Price data

US – PPI and core PPI data as well as weekly Unemployment data

Friday

IMF Meetings – Run over Friday and Saturday

Australia – Reserve Bank of Australia Financial Stability Review

China – Trade Balance data

UK – Conference Board Leading Index

Eurozone – Industrial Production

US – US Import Prices at 1:30. At 3pm we get the University of Michigan Consumer Sentiment and Inflation Expectation Data


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