GBP: Payrolls due
It is the first day of the month and, with it being a Friday as well, we will receive a look at the US jobs market via the latest payrolls report this afternoon, Data from the US has been hard to come by in the past month following the government shutdown and therefore every piece of data now released has more importance.
These, alongside the latest manufacturing sentiment that is due for release at 3pm, will be able to flesh out whether the Fed’s comments of the need for a pause in interest rates is warranted or already being seen as knee-jerk.
The jobs market has been a hot bed of good news and dollar strength in the past few months and any reading this afternoon over 160,000 for jobs added in January will be viewed positively once again. Obviously the shutdown makes forming a trend out of today’s numbers a bit of guesswork.
The manufacturing sentiment figure at 3pm is almost more important given the absolute dearth of data from US factories in the past month. This will be able to show us just how American factories that are part of supply chains with Chinese manufacturers are faring and whether the wider consumer sector in the US remains strong.
In the lead-in to both announcements the USD has recovered a little from its swoon following Wednesday’s Federal Reserve announcement.
CNH: Weaker on lower manufacturing sentiment
CNH has been weakened from its strongest level in six months against the USD overnight alongside the broader strength for the US dollar. News on the trade talks between the US and China remains light, although President Trump said yesterday that he will meet with Chinese President Xi soon to try to seal a deal on trade. China has promised to increase its purchases of US goods “substantially” according to news reports although these promises are nothing new.
Another set of Chinese PMIs showed that sentiment in the country’s manufacturing sector continued to weaken in January and now sits at the lowest since February 2016.
GBP: Another two weeks of circles
When asked by clients, investors, journalists or others for a forecast on GBPUSD or EURGBP, the horizon is always 12/18 months; you’re lucky to be accurate to 12/18 days at the moment. Whilst nothing in effect changed on Tuesday and sterling can’t be too unhappy with the outcome, eyes must now refocus on the 13th/14th of February; the next ‘meaningful vote’.
Obviously this will come with little more than six weeks until March 29th and leaves parliament little time for renegotiation. As it stands, there is little to suggest that Theresa May’s deal is likely to garner the necessary support to pass the House of Commons in a few weeks’ time so we must look at how the chips fall from there.
The most negative stance for sterling would be the May government positioning itself for a no-deal upon defeat of its withdrawal agreement although we find this scenario unlikely. This circumstance is the only scenario in which we can see a confidence motion in the government succeeding as Tory MPs side with Labour and bring the temple down on their heads to prevent a no-deal Brexit.
On the other hand, positivity could easily come as easily as a heckle to a disgruntled parliamentarian. The most positive outcome of course would be a deal that provides the UK with a transitional arrangement and nixes the prospects of crashing out without an agreement. In this situation we could expect to see sterling rise by as much as 5%, with more likely if our expectations of a Brexit relief boom come true.
Have a great day and an even better weekend.