Judgement day for May

January 15, 2019

GBP

Sterling flirted with a half of a percentage point rally yesterday after ITV sources claimed that the Conservative party’s eurosceptic European Research Group would side with Mrs May in today’s meaningful vote. This was short-lived, however, after minister Steve Baker confirmed that the group- a prominent opponent of May- would indeed vote against her withdrawal bill. Sterling has been floating higher over the last 24 hours as positivity creeps into the market. Expectations of May’s deal passing the threshold are low, but sterling upside could take the form of a delay in Article 50, or even a marginal loss by the government. Yesterday, eventually, little materialistically changed. Jean-Claude Juncker, the President of the European Commission, released the clarifications in the Irish backstop that May had hoped for. As the letter did not contain any legal guarantees it was brushed aside without much second thoughts by MP’s that stand to vote against the Withdrawal Bill. The schedule today kicks off with Attorney General Geoffrey Cox addressing the House of Commons at 12:30 GMT, followed by a continuation in the 5-day debate before May has the final say prior to the vote, which is scheduled at 19:00.

EUR

EUR enjoyed a quiet session yesterday, with no top tier data released and the focus of markets firmly on the Brexit vote and the US government shutdown. November Industrial Production came in at -1.7%, which did not come as much of a shock after the German, French and Italian figures showed a similar contraction earlier. The single currency seems to stand at some kind of crossroad at the moment with a lot of negative risks already priced in. For the optimist, this means the only way to go is upwards from here, though the pessimist may counter that the recent string of adverse data may set the tone for an unfavourable performance of the Eurozone economy in 2019, if risks fully materialise. The Trade Balance at 10:00 GMT will tell how much economic activity in the external sector continues to add to Eurozone growth. However, weak Chinese Trade Balance data released yesterday does not bode well for this morning’s Eurozone release, given the importance of China as a trading partner.

USD

Brick by boring brick Donald Trump resiliently remains set on building the wall on the US-Mexico border. In doing so, US equity markets continue to see red as data releases point to a sharper economic slowdown than previously expected. Today’s headlines point towards rising transatlantic commercial trade tensions ahead of trade talks later this year. These developments come after European Union officials have already stated that reduced protections for EU farmers are not negotiable. Both parties at the moment look far apart after US Trade representative Robert Lighthizer published the Trump administrations negotiating tactics just days after the meeting of representatives. Lighthizer stated that US access to EU agricultural goods is a top priority as they aim to “reduce or eliminate tariffs”. Later today at 13:30 GMT, US Producer Price Index is released and is expected to hold firm at 2.5%.

CAD

The loonie failed to sustain its rally in the afternoon of yesterday’s session as oil prices showed little impetus to continue their upwards rally. However, today WTI prices start on the front-foot and the loonie is following suit, breaking a 3-day claw-back from its steep rally at the start of the year. Analysts expect tomorrow’s US’ Energy Information Agency data to show another fall in stockpiles, the sixth time in seven weeks, as the glut in crude supply continues to be absorbed. Should this be the case, the loonie may be set for another bout of strength prior to Friday’s Consumer Price Index release. Yesterday saw Teranet’s House Price index decline by 0.3% in December.

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