It started, as trouble often does, with Bonnie and Clyde but perhaps things would be different the world over if the geriatric Hollywood stars and hosts of the Best Feature at the Oscars, Warren Beatty and Fay Dunaway, had stuck to their guns and not paved the way for a Moonlight comeback better than the England rugby team against Italy. Amusingly, the error can be traced back to Brian Cullinan and Martha L. Ruiz, accountants from Price Waterhouse Cooper (the firm that has been handling the Academy ballots for 83 years) who were the only people who know who the winners are ahead of time.
The Fed released its policy meeting minutes from the end of January, discussing the possibility of another rate hike as soon as March but rates were not raised in this meeting due to lack of clarity around Trump’s policies. Many participants supported to raise rates soon. Fed Chair Janet Yellen does not want to wait too long but most analysts expect a rate hike in May. Moreover, weekly jobless claims stayed low with 244,000 claims reducing the four-week average to the lowest level since 1973. The US dollar hit a one-week low after U.S. finance Chief Steven Mnuchin said the new administration will only perform a small portion of the economic reforms Trump declared before his election and that the tax reform will probably be delayed until August.
Worth highlighting this week, President Trump will address a joint session of Congress, this clearly is a major risk event given the persistent confusion around comments from he and Mnuchin recently. Trump is set to deliver his speech at 02:00 01Mar GMT. I have high hopes that Jordan Horowitz, who unfuddled the Oscars mix up, will be on hand to straighten things out again thereafter.
US numbers were respectable last week. The Federal Open Market Committee (FOMC), which is the monetary policymaking body of the Federal Reserve System, reported slightly dovish but still upbeat minutes from their meeting. Still, the dollar failed to gain ground and the Trump administration is yet to outline its economic agenda.
In the UK, Second Estimate GDP posted a gain of 0.7%, edging above the estimate of 0.6%. BoE Governor Carney testified before a parliamentary committee about the inflation report. Despite stronger inflation and decent economic numbers, the BoE is reluctant to raise rates, as it continues to maintain a neutral monetary policy stance.
Encouragingly, US Treasury Secretary Mnuchin tweeted that he had a “productive meeting” with BOE’s Carney and looks forward to working together on international financial issues. Lets not count chickens just yet…
Earlier today in the Asian market, the pound fell a bit over 0.50 percent. Experts pointed to a report from the Times of London that suggested Prime Minister Theresa May was preparing for the Scottish government to call a second independence referendum to coincide with the triggering of Article 50 in March. "If that's the case, I suspect there's been a bit of an overreaction here." said Ray Attrill, global co-head of foreign exchange strategy at the National Australia Bank, reported CNBC. Attrill added, "If the market does seriously think there can be another independence referendum much sooner than that, then remembering how hard the pound fell in early September 2014 just in front of the prior referendum, then the memory of that makes Sterling a fairly easy sell here."
GBP/USD movement can be seen on the graph below:
Depending on how you think the US Dollar will fare, you may wish to consider calling one of our team to fix forward rates of exchange to mitigate downside exposure.
UK services optimism is highest since Brexit vote - CBI- Optimism among businesses in Britain's services sector is now higher than at any time since June's vote to leave the European Union, despite the prospect of rising costs and prices eroding profits, a major business survey showed on Monday. The Confederation of British Industry said optimism about the outlook among business and professional services firms was the highest since November 2015, while consumer services firms' optimism was close to levels last seen in May.
BOE external MPC member Michael Saunders speaking in Scotland said that the absence of a credit freeze after the Brexit vote was the main factor behind the unexpected resilience of the UK economy. Some would argue though that the additional easing was unnecessary, premature and potentially damaging in the longer term. Stealth taxation by inflation may well have been the intended outcome and now it is knocking hard at the door like the wolf in Little Red Riding Hood.
GBP/EUR started last week at 1.1703, ended the week at 1.1792 and opened again this morning at 1.1725 proving itself to be purely range bound all week with no massive moves across the board.
You may wish to set market orders now that we have had a relatively quiet week. This could easily be the calm before the storm and elections across Europe draw ever nearer. Please contact a member of the Aston team to discuss.
Euro-zone data was mostly positive, with flash PMIs all coming out above expectations. Germany’s IFO figures beat early estimations. Hope also came for markets from French political news, where centrist candidate Macron received a boost from a centrist rival and Marine Le Pen appears to be taking all of her cues from Trump as she attacks the media; #lefakenews.
Euro movement against the Dollar can be seen on the graph below:
In the US, data was positive as well, and the FOMC’s minutes were relatively upbeat. However, Trump’s administration does not seem to prioritize big economic changes just yet. Euro/dollar started the week with a dip, halting initially at the 1.0520 level before dipping lower and bouncing back up quicker than Emma Stone at the Oscars. Economic indicators are likely to continue supporting the euro this week. In addition, markets are currently focused on politics: in Europe, the French elections could lean towards Macron and in the US, the Trump train is not exactly derailing but if there is a plan it must be based on chaos theory.
Principal Events for this week are packed with PMI data, inflation figures, etc. especially manufacturing PMIs for Eurozone on Wednesday morning, Net Lending to Individuals around the same time, with European Unemployment rate: Thursday.
Good luck out there and please do not hesitate to get in touch with us for any of your foreign currency needs.
Written by Damien Lipman