Good morning,
USD – Tariff uncertainty
This week the newly implemented steel and aluminium tariffs come into effect, which will apply to all US imports, except from the EU and six other countries. The excluded countries include the largest exporters of steel to the US, Canada, Mexico, South Korea and Brazil. However, US businesses have asked the US government to clear up uncertainties around these tariffs, as there could be a significant impact to the top steel companies.
Economic data today consists of the Chicago Fed National Activity Index analysing overall economic activity and inflationary pressure. This number is expected to uptick in line with the Fed’s expectations of higher inflation and a positive reading will give the Fed more ammunition to hike rates again soon. We also have a couple of the Fed members speak such as Dudley and Mester. We will monitor their comments closely for clues as to when the next rate hike might happen.
GBP – Monday morning mortgages
Last week was very positive for the pound as a transitionary agreement was reached, UK wages improved and the Bank of England appeared more hawkish with a vote of 7-2 to keep interest rates the same. The market is now looking at whether another UK rate hike could come as early as this summer rather than 2019. The transitionary agreement, however, has it’s holes.
The PM made some significant concessions within the agreement – including keeping the UK fishing industry under EU rules and the continued role of the European Court of Justice – in order to progress with trade talks. We will monitor the week ahead for any political back and forth. Risk to the pound this week may come from turmoil within parliament.
We have mortgage approvals Monday morning, giving us an idea of how many people applied for mortgages during the previous quarter. We will see if the last rate hike and Brexit uncertainty has deterred people from buying a house or whether the resilience of the UK economy has allowed more people to apply to buy homes.
EUR – Former Catalan leader arrested
The big news from the weekend was that former Catalan leader Carles Puigdemont was arrested in Germany on an international arrest warrant. He now faces extradition to Spain and a possible 30 year prison sentence if convicted. This could fuel further conflict in the Catalonia region amidst a troubling time for Spain.
We saw last week that the EU managed to secure exemption from the introduction of US tariffs, which has calmed the possibility of a trade war between the EU and US. This certainly provided a confidence boost to the euro but this may only be temporary.
Have a great day