Failure: part one

14th March 2019 Off By binary

GBP
UK Manufacturing output registered a 0.8% increase in January, bouncing back from a 0.7% decline in December. GDP recovered 0.5% in January for a year-on-year increase of 1.4%, up from 1.0% in December. But who listens to the data when we have Brexit?

Attorney General Geoffrey Cox was the news of the day when he stated the overall legal risks of being trapped in a backstop had declined but still existed. The market swiftly priced in expectations that the House of Commons would not back the government’s Brexit deal and the Pound fell sharply to lows near 1.3000 against the Dollar with the Euro near 1.1560. The early afternoon saw a notable rally with short-term volatility rising to the highest level since June 2016.

The government lost the Brexit deal vote by a margin of 149 as the Northern Irish DUP and over 70 Conservative MPs again voted against the deal. Whilst the Pound registered net losses, the impact was dampened by expectations that a ‘no-deal’ outcome would also be rejected in today’s vote. Sterling settled around 1.3100 against the Dollar with the Euro around 1.1610 with markets still assuming that ‘no-deal’ will be rejected tonight.

USD

The US Dollar traded lower yesterday morning after data released this morning showed CPI increased 0.2% in February, matching the market’s estimates. The all items index rose 1.5% over the past 12 months, lower than the 1.6% rise for the year ending January.

US consumer prices increased 0.2% for February which was in line with consensus forecasts while the year-on-year increase at 1.5% was slightly below market expectations of 1.6% and the lowest reading for over two years. Core prices increased 0.1% compared with expectations of 0.2% with the year-on-year rate at 2.1% from 2.2%.

The benign data reinforced expectations that the Federal Reserve (Fed) could be patient on monetary policy and leave interest rates on hold in the short term. The Dollar edged lower following the data and gradually lost ground against its peer currencies as global risk appetite held firm whilst US yields declined.

EUR

Reports surfaced yesterday that the European Central Bank (ECB) was unlikely to decide on the final long-term refinancing operation until June this year, weakening the Euro slightly. The Euro versus the Pound saw a lot of activity due to the headlines around Brexit, whilst a weaker tone surrounding the Dollar helped the single currency. Mid-afternoon, the Pound fell when there was increased speculation that the Withdrawal Agreement would be rejected.

Today’s data sees Spanish CPI figures which are then quickly followed by the ECB’s Mersch’s speech. Slightly later in the morning will be the EU’s industrial production (both month-on-month and year-on-year) for January. Most attention, however, will be the UK’s budget report and then the ECB’s Coeure’s speech this evening.

 

Data to watch:

08:30 EUR ECB’s Mersch speech
10:00 EUR Industrial Production s.a. (MoM) (Jan)
12:30 USD Producer Price Index ex Food & Energy (YoY) (Feb)
12:30 USD Durable Goods Orders (Jan)
12:30 USD Nondefense Capital Goods Orders ex Aircraft (Jan)
12:30 USD Durable Goods Orders ex Defense (Jan)
12:30 USD Durable Goods Orders ex Transporation (Jan)
N/A GBP Budget Report
17:00 EUR ECB’s Coeure speech
23:50 JPY Foreign investment in Japan stocks (Mar 8) 

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