Good morning,

USD: Data looking poor

We are only three days into the trading year and we have already had enough news for a month of market movement. Most of the volatility has been driven by a lack of liquidity than anything fundamentally different to what we saw in 2018, but changes in economic data are perennial.

Yesterday’s ISM manufacturing number from the US was horrid; the manufacturing sector saw output fall, imports drop off a cliff and future orders collapse. While there are some idiosyncratic reasons why the fall in manufacturing sentiment was the largest for a decade – lower oil prices for one – the wider impact of the US’s trade war with China are easy for all to see. The concerns from Apple were not an isolated event and we will have to wait and see whether China’s or US’s data cracks further first.

China and the US are set to hold trade talks at the beginning of next week. This will be the first fin person negotiation between the two since Presidents Trump and Xi agreed a 90 day truce in early December.

Today is payrolls day so the dollar will be looking to just how many jobs the US economy managed to create in December and the Fed Chair, Jerome Powell, will speak today at 4.15pm GMT. We only heard from him a week before Christmas but a lot has happened since and his comments on wider economic issues will be watched closely for signs of Federal Reserve concern.

GBP: Ready for Westminster to return?

With Westminster quiet, it has been easier to get a coffee (pint) close to WorldFirst HQ but the pound has also been bereft of direction. Parliament returns on Monday and with it will come a focus on sterling akin to what we saw heading into the eventually pulled meaningful vote.

We are at the very most 14 days away from the meaningful vote wherein MPs will in all likelihood vote down Theresa May’s current Brexit deal. As it stands today we have 12 weeks until the UK leaves the European Union, currently without a deal and no transitional┬ádeal.

As we have written in our 2019 outlook on sterling, obviously a deal is naturally sterling positive – it eliminates the case of no-deal – but we think that there is the significant chance that the equivalent of a political game of chicken to force weak hands to sign a deal, will drive the pound even lower in the short-term.

The latest sentiment survey from the UK’s services sector is due at 9.30am GMT this morning and will be crucial to setting expectations for further economic activity into 2019.

EUR: Italian risk returns

Eurozone inflation is due this morning and will likely disappoint both the market and the European Central Bank’s expectations, stifling near-term upside for the European single currency.

Similarly, the news that an Italian bank will need to be bailed by Italian authorities has heightened the political noise in the country further following the battles over its EU budget through the last quarter of 2018.

Have a great day and a better weekend.