Good morning,
GBP: A year to go
While a transitional deal was signed last weekend allowing the UK more time to implement the necessary changes to leave the European Union, Britain will cease to be part of the European Union a year from today. Article 50 was triggered 365 days ago and we are at exactly the half way stage. As attendees of our recent webinars will know, we are a little further down the road on Brexit than we had anticipated at this stage, mainly as a result of that transitional deal but there remains a huge amount of discussion, negotiation and agreement to be had before ‘Brexit’ is anywhere close to complete.
Sterling is lower overnight for a couple of reasons; initially the run higher yesterday on the possibility of a clarifying statement on a deal over the Northern Irish border dissipated as the statement never came and overall dollar strength has started to work its way against GBPUSD as well.
Yesterday’s Bank of England agents survey showed that between December 2017 and February 2018 growth in goods exports had improved, and together with recovering profit margins, strengthened investment intentions in manufacturing slightly. Recruitment remains an issue however and the impact on pay growth had been limited. Consumer spending however remains weak with retail and leisure sectors in distress as a result.
Overnight two confidence measures showed that consumers and businesses are finally gaining a little more confidence in the future. The GfK consumer confidence index improved to -7 in March from -10 in February. The outlook for personal finances increased 5 points to 10, with the prospect of wage increases finally beating price rises helping significantly.
Lloyd’s business barometer slipped to 32 from 33 in February but the outlook for the next 12 months improved.
Brexit news may be light over the weekend with both the UK and EU parliaments on recess for the Easter break.
EUR: German unions driving wages
Heading into the Easter weekend we have German CPI to analyse. The strength of the German labour market has made unions able to fight and win higher wage settlements for their members and this is now floating through into inflation. We expect today’s figure to show that and further increase bets that the European Central Bank will end its quantitative easing program in Q3 of this year.
USD: Trimming ahead of Easter
The dollar is a little stronger this morning but the trend is once again weak and everyone seems ready to down tools and crack into some Easter eggs and lie-ins. A little bit of good news is creeping back into prices following the news North Korean leader Kim Jong Un and South Korean President Moon Jae-in will hold a summit on April 27, according to a South Korean Unification Ministry official.
US inflation is due this afternoon and the recent weaker dollar could lift PCE a little further than markets expect although, given the market for rate hikes looking like it does at the moment, the flow through effect into the USD should be marginal.
Have a great day and a cracking Easter weekend. We’re back on Tuesday.