Good afternoon,
The week ahead in GBP
If you’re looking for inspiration this week in sterling then you may be sorely disappointed. Last week’s votes on Brexit were little more than window dressing and the largest issue for the pound remains the intransigence of the politicians to compromise on their fears on the Northern Irish backstop and therefore the need to sign the Withdrawal Agreement before the end of the Article 50 period.
That will not happen this week however with another ‘meaningful vote’ possible next week but our central scenario remains that an agreement will not be forthcoming until the final few days of the Article 50 process.
This week’s economic data is thin on the ground with tomorrow’s jobs report the only piece of tier-1 data from the UK. While we expect unemployment to rise eventually, we don’t think that we’re at that point yet. Sterling support could come from confirmation that the rate of wage increases are continuing to improve although it would take a substantial drive higher in pay for investors to revisit their expectations as to when interest rates will rise in the UK.
For sterling it is very likely that this week sees it pulled around by influences elsewhere.
The week ahead in USD
Last week’s political news is still ringing in the dollar’s ears with the trade talks between China and the US and the avoidance of a government shutdown limiting the need for investors to hold the greenback as a haven from market insecurity. The key focus for the dollar – and for wider sentiment around the actions of the world’s central banks – is this Wednesday’s Federal Reserve minutes from the January meeting. This meeting saw the language of the Federal Reserve shift markedly in favour of a pause to additional interest rate rises, sending a ripple of uncertainty through global markets and causing many analysts to reconsider the path of the USD.
These minutes will flesh out just why the Federal Reserve has felt the need to ‘pump the brakes’ on its plan for monetary policy tightening. If markets come to the conclusion that a continuation of the current fears are enough to push the Federal Reserve into slowing the rate that it is disposing of the assets it bought as part of its quantitative easing program, then the dollar could be in for a rough time.
The week ahead in EUR
The poor start to 2019 has continued for the euro in recent weeks and there is unlikely to be much respite for the single currency anytime soon. While there has been poor data from both the US and Europe this year, investors will always prefer the USD as long as the yields on US debt remain so much richer.
The notes from the European Central Bank have caused many to doubt optimism on European growth and inflation and weakness here will easily be enough to keep the currency depressed. This week’s German IFO survey of business confidence is likely to confirm that, while the German economy may have avoided a recession in the final quarter of 2018, a rebound is not coming anytime soon.
The week ahead in CNY
The trade talks between the US and China will continue this week. We remain optimistic that an extension of the current terms beyond March 1st will be agreed soon although that is largely priced into the yuan and wider emerging market assets. Any news that a full trade agreement is forthcoming will extend these gains even further. We hope to have some clarification by the end of the week.
The week ahead in JPY
USDJPY drove higher through the last week, although a poor US retail sales announcement managed to put that run around the 111 mark. It is our belief that the pair will eventually trend towards the 105 level over the course of the year although we may have to wait until such a move presents itself.
The week ahead in SGD
Last week’s GDP report was enough for most of us to recognise that the Singaporean economy is in a tough spot with the recent downturn in global trade and a softening of technology spending. Growth was lower, unemployment higher and spending uncertain and that would normally lead us to think that the SGD is in for a tough few months. Actually, what is more than likely to happen is the SGD to trade on the headlines coming out of Washington and Beijing over the prospects of a trade deal between the two largest economies on earth.
Have a great week.