Good morning,

Strangely quiet?

The Trump/Brexit news flow continues to dominate markets although this week has opened quieter than the rest of 2017; yesterday’s open of Asian markets was the first one this year wherein I have not been concerned about the fate of the pound following some political announcement over the weekend.

Slack returns to US jobs

Friday’s US jobs report was in the round rather disappointing; while the headline number of 227,000 jobs added was well above estimates, weakened wage strength suggests to us and policymakers that there may be a little more slack in the US economy than previously thought and therefore, less incentive or need for the Federal Reserve to raise interest rates. While we do not think that expectations of a hike in March will drift out of the market too quickly, any news that shows that the US labour market is struggling to create consistent and strong wage gains will gradually reduce the likelihood of an increase in borrowing costs.

Dollar endures worst week for 7 months

The dollar was pushed lower through the Friday afternoon session. News from the Trump administration late on Friday about the repeal of certain regulations within the financial sector as well as a TV appearance ahead of the Superbowl wherein the President laid out the timelines for healthcare and tax reforms have not been able to help the greenback recover and the USD finished last week for its worst weekly performance since June last year.

Westminster in focus

Friday’s GBP performance was helped by the weakness in the US dollar but had its own issues to deal with as the services PMI for January showed a slowing in the sector. Once again it was increased costs and compressed margins that were the main dangers to the sector and will be crucial, alongside private consumption, as a gauge of just how well the UK economy is doing. Following similar news across all sectors it is clear that the impact of Brexit is now starting to bite.

Politics will be the main driver of the pound once again and that performance will all depend on any and all amendments attached to the government’s Brexit bill due to be debated once again on Wednesday. Any amendment stipulating that parliament must be able to vote on what happens should a deal not be reached after 2 years of negotiations would likely be a help for the pound but, as with all these things, if that amendment is not picked then it’s over before it began. There are over 100 amendments that have been submitted.

We still anticipate Article 50 being triggered in mid-March.

The Israeli President is in town to talk Iran with Theresa May before he heads off to Washington. We would expect a statement on trade to also be released following his visit as well. Israel’s total trade with the UK in 2015 was around £3.6bn – a tenth of what we do with Spain.

The Day Ahead

Today’s news calendar is quiet but Chinese data overnight tonight will show us just how much money the People’s Bank of China has burnt through defending the yuan in the past month.

Have a great day.

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