Good morning,
We will build the wall!
If Monday was abortion rights and Tuesday was pipelines then today is about the wall. President Donald Trump tweeted last night that he had a “Big day planned on NATIONAL SECURITY tomorrow. Among many other things, we will build the wall!” Needless to say, the Mexican peso has taken this rather poorly and is now only 1.8% away from its all-time lows versus the US dollar.
Funds are expected to be diverted from the Department of Homeland Security to the construction of the wall while plans to suspend visas for people from Syria, Iraq, Iran, Libya, Somalia, Sudan and Yemen have also been mooted.
Mexico a weak kid getting weaker
Mexico is so dependent on the United States that total trade with the US was five times that of the 2nd most important trading partner, China. This has been reflected in the moves within currency markets; since Election Day the Mexican peso has fallen by 14% while the Chinese yuan has only lost around 0.5%.
Mexico is as to the United States as a remora is to a nurse shark; they benefit each other but the remora is never going to grow larger than the shark. As we have said countless times, Trump is picking on the weaker kids (Mexico) at the moment and leaving the ones (China) who can give him a bloody nose well alone.
We expect MXN to remain under pressure through 2017 as trade issues become more antagonistic.
Brexit ball to start rolling today
Sterling is in a funny mood this morning and spent a lot of its time yesterday lurching around like a drunk on an ice rink. The reaction of sterling to the Supreme Court judgement was a fairly binary affair; higher on the basis that parliament must vote but lower given the regions do not get their own say.
Many political commentators believe that government will look to move quickly in introducing the Brexit bill with some suggesting that a short, sharp bill to invoke Article 50 could be introduced as early as today. Secretary of State for Leaving the EU David Davis is due to address the Commons tomorrow morning at 09.30am – the same time as the first reading of UK GDP for Q4 – and the absence of any whitepaper on the government’s plan may trigger sterling selling.
Theresa May is off to Washington today to meet with Congressional Republicans and Donald Trump by the end of the week; tough on trade and tough on the causes of trade? We will wait for the inevitable debrief in the Sunday papers or a 140 character missive from the Twitter of the most powerful man in the world.
The Day Ahead
We expect that today’s German IFO look at business conditions in Germany will continue the recent run of strengthening data when published at 9am and will keep the EUR in the 1.07s against the greenback. We are still happy to maintain our position that EURUSD will come under pressure in the first half of the year and a breach of parity looks likely as the political pressures of the Dutch and French elections begin to weigh.
Have a great day.