Article 50 countdown begins

Good morning,

Sterling slumped yesterday as parliament backed Theresa May’s amendment to have Article 50 triggered by the end of Q1 2017 in exchange for some semblance of a plan from the government on how they would negotiate with the EU. The government of course has decided that no details that could weaken the negotiating stance will be released.

In the spirit of pantomime season I am unsure whether lawmakers have sold the cow for some magic beans.

The pound’s weakness comes after a run of strong data and we therefore have to countenance that while we may have seen the post-vote 2016 lows for sterling against the euro, USD et al, we have also seen the highs of this recent range come and go. The data from the UK economy is set to worsen in the New Year and that will give sterling an additional knock lower.

Today sees the last day of the Brexit case at the Supreme Court.

Today is also the last opportunity for the European Central Bank to talk to markets and investors and influence both on their expectations for further quantitative easing. As it stands at the moment, the current ECB bond buying plan will run out at the end of Q1 2017 with most in markets expecting an additional 6 months of spending on bonds to be agreed, although the level of spending is very much up for discussion.

While central banks and political movements have had a torrid year, one has to believe that the recent results in Italy do not lend much to the argument that the quantitative easing should be cut. Indeed, with the political risk that is on the horizon you would be forgiven for thinking that the ECB must cobble together something that takes them past the risks from the German election in September.

There are issues over what the bank can buy and in what proportion compared to the debts of others (which we will not go into here for the sake of brevity) but makes this meeting one of the more pernickety to interpret.

The staff forecasts that will also be announced at this meeting are unlikely to show much for the ECB to be happy about with limited prospects for growth or inflation returning to target.

The irony of the recent run lower in the yuan became clear last night as export numbers from China rose for the first time in 7 months, helped by the cheaper yuan that Donald Trump wants to rail against as he takes office. The irony is that he has done more to weaken the yuan than most. The outlook for the near-term does remain rough and fears over credit, the yuan and the impact of the Trump presidency will not be assuaged by one month’s positive numbers.

The data calendar is dominated by the ECB rate decision at 12.45 and the press conference at 13.30 with little else to worry about.

Have a great day.