May Faces Difficulties Keeping Cabinet United Over Brexit

Theresa May is braced for her Cabinet to split when the European Union rejects her demands for a sweeping free trade deal, after her senior team agreed to put off the hardest Brexit decisions until later.Despite the Cabinet truce after months of internal division, three senior government officials said May will face her most challenging task keeping her ministers united when — as they expect — EU leaders formally reject the British approach.The U.K. prime minister won the backing of her ministers to ask the EU for the most ambitious and wide-ranging trade agreement the bloc has ever signed, after a marathon eight-hour meeting at her country house on Thursday.

Source: May Knows Danger of Cabinet Split on Brexit Still Lies Ahead – Bloomberg

DAX Edges Lower as German GDP Slows in Q4

24 hours of reconciliation

50 50 Chance of Halting Brexit

Opponents of Britain’s exit from the European Union are preparing a major campaign they say now has close to a 50:50 chance of stopping Brexit by blocking Prime Minister Theresa May’s divorce deal, a leading pro-EU campaigner said.With Britain scheduled to leave the EU in March 2019, opponents of Brexit are exploring various ways to stop what they say is Britain’s biggest mistake since World War Two.‘Best for Britain’, a campaign group which received a 400,000 pound donation from billionaire financier George Soros last year, hopes to convince lawmakers in the 650-seat parliament to block the withdrawal deal May aims to bring back from Brussels in October.

Source: Chance of halting Brexit now close to 50:50, says leading campaigner – Reuters

DAX Edges Lower as German GDP Slows in Q4

24 hours of reconciliation

UK Growth Revised Lower

The UK economy expanded by less than previously thought in the last three months of 2017, official figures say.GDP grew by 0.4% in the October-to-December period, the Office for National Statistics (ONS) said, down from the initial estimate of 0.5%.The revision was due to slower growth in production industries, the ONS said.In 2017 as a whole, the economy grew by 1.7%, also slightly lower than previously thought and the weakest since 2012.

Source: UK economic growth revised downwards – BBC News

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

GBP/JPY – Bearish Breakout Ahead of Jobs Data and BoE

OANDA Senior Market Analyst Craig Erlam talks to Core Finance about the recent bearish break in GBPJPY and whether it signals more pain ahead. He also previews the UK jobs data and Bank of England inflation report hearing and what they could mean for interest rates this year.

USD/JPY – Japanese Yen Edges Lower as Japanese Manufacturing PMI Dips

BoE Hearing and Fed Minutes in Focus

DAX Under Pressure, Investors Eye Fed Minutes

BoE Hearing and Fed Minutes in Focus

US Futures Continue to Pare Last Week’s Gains

US equity markets are expected to open in the red again on Wednesday, tracking losses in Europe as stocks continue to pare last week’s strong rebound.

It’s been a relatively quiet start to the morning and the week, with the bank holiday in the US and Canada contributing to this. The European session has been dominated by economic data releases so far and that’s likely to continue, with flash manufacturing and services data due from the US shortly after the open. It’s the FOMC minutes that will be released later in the day though that will likely be the standout event from a US perspective, particularly as the statement caused quite a stir at the end of January.

US Yield Curve Now (Orange) and on 29 January 2018 (Purple)

Source – Thomson Reuters Eikon

The sell-off in the markets may have come a couple of days later but part of the initial trigger was a more hawkish sounding Fed, with the jobs report then being the straw that broke the camel’s back two days later. While the minutes may not generate quite the same response, traders will likely monitor what they say very closely for signs that policy makers are now leaning more towards three to four rate hikes this year, rather than two or three.

EUR/USD – Euro Ticks Lower as German Manufacturing PMI Softens

GBP Slips as Unemployment Ticks Higher

Sterling is coming under a bit of pressure this morning after UK jobs data for the three months to December showed wages still growing at a moderate pace and unemployment ticking up to 4.4%. While a higher reading on wage growth may have triggered a more bullish response from the pound, the data turned out to be quite insignificant as it’s unlikely to change the views at the Bank of England.

UK Unemployment Rate

Wages have been slowly ticking higher recently and they could continue to do so as workers demand more due to the higher cost of living and a tight labour market. The move higher in the unemployment rate won’t be a concern at this moment with it potentially being a one-off move and still very low. As long as inflation remains at upper range of what is deemed acceptable, the central bank seems intent on raising rates at least once more this year, despite the temporary factors driving it and economic uncertainty that lies ahead.

Yield-o-Mania

BoE Inflation Report Hearing Eyed as Markets Price in Rate Hikes

Members of the Monetary Policy Committee including Governor Mark Carney will appear before the Treasury Select Committee later on today, during which they will be questioned on their latest inflation report forecasts and expectations for interest rates going forward. While it’s always interesting to get the views of policy makers and the pound will likely be volatile throughout, I wonder how much of what they have to say will now already be priced in, with at least one rate hike now expected this year.

GBPUSD Daily Chart

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With that in mind and with Brexit transition negotiations likely to dominate the next month, we could see the pound lose some of the momentum that’s been gathering over the last six months or so. It’s recent failed to make new highs on two occasions against the dollar and it’s also slipping against the yen in a possible sign that traders are beginning to lock in profits ahead of what could be a difficult month.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

FX Market Analysis – 20 February 2018 (Video)

Senior Market Analyst Craig Erlam discusses this week’s key event risks, with the most notable being the UK jobs report and BoE inflation report hearing.

Craig also gives his live analysis on EURUSD (11:04), GBPUSD (15:13), EURGBP (17:04), AUDUSD (18:36), USDCAD (20:02), GBPCAD (22:01), NZDUSD (24:47), USDJPY (25:44), GBPJPY (26:47) and EURJPY (28:24).

USD/JPY – Dollar Punches Above 107 Yen, Fed Minutes Ahead

Higher Yields Pushing Dollar Up

Intermezzo

Macron Inspires New UK Party Intent on Blocking Brexit

A new British party inspired by French President Emmanuel Macron’s movement launched a campaign on Monday to thwart Brexit by convincing MPs to block any EU withdrawal deal Prime Minister Theresa May can strike.Sandra Khadhouri, together with fellow Renew party members James Clarke and James Torrance, speaks at the launch of the new political party in London, Britain, February 19, 2018. REUTERS/Peter NichollsWith just over 13 months left until Britain is due to leave the EU, opponents of Brexit are exploring ways to stop what they call Britain’s biggest mistake since World War Two.The Renew party, founded last year after Macron’s En Marche! movement propelled him to power, said it would target pro-Brexit MPs in constituencies with high levels of support for EU membership.

Source: New British party inspired by Macron seeks to overturn Brexit – Reuters

Don’t go barking up the wrong tree in the Year of the Dog

Dollar Regains Ground Ahead of Fed Minutes

US Indices on Course For Full House

Futures Point to Full Week of Gains After Sharp Correction

US equity markets could end the week with a full house of gains as long as indices manage to hold onto the small gains being seen in futures ahead of the open.

This would also bring an end to two shocking weeks for equity markets that saw more than 10% quickly wiped off indices, the first time we’ve seen such a move since the start of 2016. While the prospect of higher yields and interest rates, combined with a surge in volatility, have been blamed for the decline, the rebound we’re now seeing reaffirms the belief that fundamentals are still strong which should prevent the situation deteriorating further.

There are a few economic releases that traders will likely be aware of as the week draws to a close. The UoM consumer sentiment reading is always an interesting release, given the importance of the consumer to the US economy. Building permits and housing starts will also be released ahead of the open on Friday. The bulk of companies may have already reporting numbers for the fourth quarter but there are still some more to come today, with 13 due to release earnings including Coca Cola and Kraft Heinz.

US Bond Auction TIPS the dollar

Sterling Resilient After Poor Retail Sales Figures

UK retail sales data for January was once again disappointing, providing further evidence that the post-Brexit squeeze on consumers is heaving an economic impact. While this could be partially reversed as sterling continues to rebound off its lows and wage growth picks up to offset higher living costs – assuming it does – we’re seeing few signs that the squeeze is easing and that’s being reflected in the spending figures.

The pound has actually been quite resilient to the data in the aftermath of the release. While it has since declined against the dollar, this has primarily been driven by the bounce in the greenback. The consumer squeeze and economic implications of it are already known and priced in, traders are far more concerned with wages and inflation and the impact this will have on interest rates, which makes the jobs report next Wednesday far more important.

GBPUSD Daily Chart

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Bitcoin Struggling to Overcome Psychological Barrier

Bitcoin is once again threatening the psychological $10,000 barrier but as was the case on Thursday, it’s struggling to maintain its push above and once again finds itself falling slightly short. While a break above $10,000 should be no more significant than any other, it would appear to represent an end to the plunge in bitcoin that saw it fall around 70% from its mid-December highs and for this reason, it’s proving a difficult hurdle to overcome.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

Those expecting a similar response to breaking above $10,000 that we saw last time – a near 100% increase in less than three weeks – may also be disappointed. We’re not seeing the kind of euphoria that accompanied the break at the end of November when the speculative fomo trade was contributing greatly to its meteoric rise. The crash of the last couple of months has made this less of a one-way move and those that got burned may not be so keen to jump back in.

DAX Gains Ground as Dollar Under Pressure

All of this is assuming that bitcoin will break above $10,000 which is far from certain when you consider the gradual – by its own standard – bounce from its lows. This could quite easily be another corrective move and the lows may be tested once again. The absence of a constant negative news flow is helping but whether this can be sustained is debatable.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

US Futures Higher After Second Plunge This Week

Indices Remain Vulnerable After Entering Correction

US futures are trading slightly in the green ahead of the open on Friday, a day after stock markets once again tumbled leaving indices in correction territory.

As we saw on Thursday, this isn’t necessarily indicative of calm returning to the markets. The Dow recorded declines of more than 1,000 points for the second time this week, having never done so before, despite futures prior to the open being relatively unchanged on the previous days close.

Equities Lose $5 Trillion as Bulls Slay Bulls

Clearly there remains a lot of volatility and nervousness in the markets and I don’t expect this to ease up heading into the weekend. Stock markets will likely remain vulnerable to further shocks heading into today’s close and possible even next week. That said, with a 10% correction having now completed, I wonder whether investors will now start looking to buy the dips as the fundamental backdrop remains strong.

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US Congress Passes Funding Bill Ending Brief Government Shutdown

On a more positive note, the House and the Senate approved a new funding bill in the early hours of Friday morning that will see the government through to 23 March and increase spending limits for two years, ending a showdown that came into effect overnight.

Markets haven’t been too concerned about the prospect of a shutdown since the start of the year despite two having now taken place so I don’t expect to see any boost now that a deal has been reached. This is merely just another self-inflicted risk that’s been temporarily averted.

CAC Loses Ground as Global Sell-Off Continues

Sterling Dips After Worrying Manufacturing Data

It’s a slightly quieter day in terms of notable economic events. The Canadian jobs data will be of interest given that the central bank has been relatively aggressively raising interest rates over the last six months. The UK GDP estimate from NIESR will also be of interest, given that the pound has continued to rise even as the economy experiences a notable slowdown.

The manufacturing and industrial production figures from the UK this morning showed another dip in December, with the latter in particular experiencing no year on year growth. Given that these are among the areas that have benefited since the referendum, it may be a minor concern. The pound dipped after the releases having failed to hold above 1.40 against the dollar in recent days.

GBPUSD Daily Chart

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.