Trump’s address to Congress attracts market attention

Tonight Donald Trump will be addressing Congress and this will attract the attention of the markets, as previously Trump has promised to announce ‘something phenomenal’ in relation to tax.

Tonight Donald Trump will be addressing Congress and this will attract the attention of the markets, as previously Trump has promised to announce 'something phenomenal' in relation to tax.

 

Tonight we may find out some of the detail on the tax plans and this could lead to volatility in the USD. Looking further ahead it could help to form sentiment on monetary policy as the federal Reserve are also sitting on their hands until they get clarity on the economic plans from the Trump administration.

The Trump trade which is a focus on reflation could come back into play after losing some momentum recently, and there is a small possibility that the Fed could still look at March for a rate hike. The Federal Reserve will also be awaiting key PCE inflation data tomorrow to give further guidance. Today we also have US GDP for the last quarter of 2016 to digest so lots of US news to focus on.

Second Scottish referendum speculation

The pound has been under pressure in the markets following renewed speculation over whether Scotland would be allowed a second referendum on independence, following the withdrawal of the UK from the EU. This essentially creates a new uncertainty compounding the uncertainty of Brexit itself, and hence it has weighed on the pound. The Article 50 bill is currently passing through the House of Lords with the potential for amendments to the bill.

Euro’s ups and downs

The euro is trying to hold its head above the water and has been helped by feedback from yesterday’s EC economic sentiment survey which backed up recent stronger PMI’s from Europe. The euro is still facing political headwinds from looming elections in France and later in the year Germany. The euro is also at risk of Trump delivering aggressive tax plans as this could catalyse a move lower in EUR/USD.

Sterling regains modest ground against the majors

Sterling fought to regain some fairly modest ground against the majors.

Sterling fought to regain some fairly modest ground against the majors.

Whereas political uncertainties in the Eurozone thanks to upcoming elections and Trump’s fiscal policies severely damaged the euro and dollar respectively.

Markets haven’t completely forgotten about Brexit though as it looks like Sterling could take an impact this week due to the political uncertainty. There are rising concerns about the possibility of a second Scottish independence referendum as part of the fallout from the Brexit vote.

Wise Money focuses on the US

On the political note, this week will likely be fuelled by the US as we have Donald Trump speaking on Wednesday about healthcare reform amongst other topics before the Congress in Washington DC. We also have Fed Chair Janet Yellen speaking on Friday afternoon and plenty of ticket US data spread out across the week ñ it’s likely to be a volatile next 5 days for GBPUSD.

On the other hand, the US calendar may provide some mixed news for the dollar with a further healthy pick-up in personal consumption in January forecasted. Although, core-PCE inflation looks set to edge back to 1.6%.

Eurozone cash HICP inflation expected to rise

Eurozone Cash HICP inflation is expected to rise to 2%, slightly above the ECB’s target, which could lead to further calls from some quarters for a tighter monetary policy.

More specifically however, today all eyes will be on the minimal macro-data weíre given to start the week with the monthly US Core Durable Goods Orders at 1:30PM. We’ll have an array of less important euro data throughout the morning and US data throughout the afternoon too but this isn’t expected to cause too much of an impact.

UK immigration numbers fall

Immigration has seen a fall in the UK since the Brexit vote, as Europeans feel the UK will become more hostile moving forward.

Immigration has seen a fall in the UK since the Brexit vote, as Europeans feel the UK will become more hostile moving forward.

The figures, which were from September 2016 showing net migration had fallen year on year to 273K, which is still significantly above the Governments 100K marker.

The latest CBI survey has showed UK Retail sales have bounced back from its January blues, with consumer spending still not unconvincing shoppers to run from the threat of inflation. The survey, answered by retailers showed the strong improvement from a month previous, but fears are growing for when Article 50 will be triggered and inflation continuing to rise.

Potential Frexit

A potential Frexit is causing one of Franceís biggest insurers, Axa to rethink its strategy. With its shares down nearly 5% since the election, investors are now taking Le Pens National Front party seriously. The news that her rival has agreed a pact early this week will calm nerves, but another Brexit style move in France if Le Pen is successful is now seen as a real threat to some of Frances biggest companies.

US stock markets gather momentum

The US stock markets continue to gather momentum, since Donald Trump has promised more US jobs for locals, but he has cut short advising on a plan to halt the factory jobs decline. The US is looking steady as a safe haven currency, with a probable interest rate move being looked again over the next 2 to 3 FOMC meetings.

Data to come

Canadian Consumer Price Index figures are out for viewing today, alongside New Home Sales for the US, in what will be a less volatile day in trading.

UK economy increases 0.7%

The UK economy increased to 0.7% for Q4 of 2016, up from 0.6% the previous quarter.

The UK economy increased to 0.7% for Q4 of 2016, up from 0.6% the previous quarter.

The Gross Domestic Product figures were welcomed by investors, as the pound attempted a rally. The manufacturing industry was given the plaudits as it beat its own expectations, but the ONS slashed estimates for growth in 2016 to 1.8%, down from the 2% it had forecast in January. Exporters in the UK have grown in confidence, with no surprise to GBP levels against most major counterparties since Brexit, a survey announced. Sales of UK products are expected to grow in 2017 with 9% levels higher for Q4 2016, than the previous quarter.

EURUSD hit six week low

EURUSD currency pair hit a six week low touching 1.0537 early this morning as the French Presidential election begins to take shape. With Le Pen looking a strong candidate within France, a move from her rivals has since boosted the currency pair, as Macron agreed a pact against the populist National Front.

Another rate hike expected soon

The Federal Reserve has suggested another rate hike is expected ‘fairly soon’ if important economic data continues to prosper, notably jobs numbers and inflation. The minutes from the meeting, aired yesterday showed the Fed keeping interest rates on hold, and stressed uncertainty will keep rates on hold for the short term until the future becomes clearer. 10 of the members claimed ‘moderate risk’ to inflation fears, which was seen as the main cause to keep rates where they currently stand.

Today’s data comes from the EU and the US, with German Gross Domestic Product expected at 1.7% aligned with 1.7% forecast, with a German confidence survey to add. In the US, Initial jobless claims for the week and continuing claims are to be viewed also with US House Price purchase this afternoon.

Federal Reserve minutes in focus

Risk appetite has returned to the markets following the US holiday on Monday and US equity markets closed at a new record high last night.

Risk appetite has returned to the markets following the US holiday on Monday and US equity markets closed at a new record high last night.

In addition, the price of oil moved higher on the heels of positive comments from the OPEC secretary supporting the Russian ruble and other oil linked currencies.

Tonight, we get the release of the Federal Reserve minutes from the meeting in February. The meeting itself was uneventful but we may obtain more details on the different opinions within the Fed through the minutes. The key focus will be on the timing for the next US rate hike and any signals on this will lead to USD volatility. However, with the Trump administration still to clearly outline their fiscal plans, the Fed is likely to be awaiting further details.

Wise Money eyes Germany as euro is losing grounds

Data from Germany will be eyed today with their Ifo expectations due out this morning. The number is expected to show a further fall in February. This could put more pressure on the euro which is losing ground against its major currency peers led by falling German yields. The movement in the bond market reflects future uncertainties politically and from the potential impact of the perceived Trump effect.

This morning, we are also expecting he second reading of UK GDP for the last quarter of 2016.

UK inflation report and Central Banks’ speeches in focus

With the US markets being closed due to the bank holiday yesterday, volatility was fairly subdued for the Greenback.

With the US markets being closed due to the bank holiday yesterday, volatility was fairly subdued for the Greenback.

Though the US dollar has opened with some strength this morning as traders realign positions.

With Janet Yellen, in her testimony, taking a hawkish tone on the position of the Federal Reserve as an independent body, signals for the market continue to forecast a US interest rate hike in the near future, possibly March. Analysts also forecast the Greenback to be fairly strong right through 2017, basing their predictions on expected tax, fiscal and monetary policy changes.

News from Europe

EURUSD traded above the 1.06 mark yesterday though gains have been pulled back as the Euro takes a defensive approach as the French Election draws near. A poll showing the rising popularity of France’s right wing candidate, Marine Le Pen tested investorsí nerves as they moved into French Bonds leading the stock markets to falter.

Also, Greece needs a new bailout tranche by the third quarter of the year to repay the IMF and has asked for more time to negotiate an agreement on the austerity measures, as Greece has rejected the proposal to reform pensions. On the economic calendar from the Eurozone, French inflation, manufacturing and services data are due to be released, while the US calendar is made up of speeches by Fed Members Kashkari, Harker and Williams, coupled with Redbook numbers and manufacturing and services PMI data for further direction.

Sterling enjoys minimal gains

Sterling meanwhile did enjoy some gains against the Greenback amidst low volatility yesterday but the lack of confidence in the pound is very evident as it failed to consolidate any of those gains as US markets reopened. However, despite reports that consumer confidence is still rising after the Brexit vote and that the demand for British goods has risen to a two-year high the pound has barely managed to crawl out of the 1.25 level against the Greenback after last week’s negative UK retail sales data.

With most of the movement for Sterling dependent on the Article 50 trigger and negotiations on a Brexit deal, focus for the short term will be on Bank of England Governor, Mark Carney’s speech and the inflation report due out today as well as the public sector net borrowing numbers for January for further direction.

Markets open on positive note

We’re opening this morning on a fairly positive note for Sterling, after the Friday fall which was due to weak Retail Sales figures, which put a turn on the weekly strength.

We're opening this morning on a fairly positive note for Sterling, after the Friday fall which was due to weak Retail Sales figures, which put a turn on the weekly strength.

The data suggested that higher inflation is starting to act as a bit of a headwind to consumer spending, which has been the primary driver of UK growth.

News from the US

The first point of note for the week is that itís a US bank holiday today which will affect liquidity, volatility and obviously any payments going there. Furthermore, the main noteworthy event on the macro calendar this week is the Fed minutes from their February FOMC meeting. However, given that since this meeting we’ve seen Yellen’s congressional testimony, which actually held quite a hawkish tone, the impact on the US dollar may be limited.

Euro data

Over in the Eurozone, the data schedule is dominated by survey data for February, including PMI figures and the German IFO. Overall though, we could see a bit of Euro support this week as the survey releases are likely to indicate on-going growth.

Data to come

Lastly, in terms of Sterling, the main release of note this week will be the second estimate of Q4 GDP which will give us the first look at the expenditure breakdown for growth within the fourth quarter. Unsurprisingly, any signs of a negative impact from Brexit in the data could cause problems for Sterling still.

Today we’ve got a very quiet day for macro data with the main focus being the ECOFIN meeting, the Eurozone’s broadest financial decision-making body, held in Brussels and where a range of financial issues is discussed such as euro support mechanisms and government finances.

Markets remain flat

The markets were fairly flat again on Thursday as sterling was range bound on all of its major counterparts.

The markets were fairly flat again on Thursday as sterling was range bound on all of its major counterparts.

This was despite some solid US data, as both the US dollar and stocks fell later in play. Traders are unsure of the timing of the next Fed rate hike, with speculation growing that it may be delayed beyond March as previously hoped.

Investors deciphering Trump’s press conference

Investors this morning are deciphering Donald Trump’s remarkable press conference, in which he blasted the press and defended his administration’s early progress – but didn’t flesh out his promises of tax reforms and fiscal spending. The effects of Mr Trump’s fiery press conference could see some volatility on the dollar in the not so distant future, especially with the Fed stating that the probability of a Fed rate hike in March, moving back down to only 36%.

Data to come

Friday should be a reasonably quiet end to the week, with not too much on the agenda aside from any possible political soundbites coming mostly from Donald Trump. Today’s January retail sales data will be watched closely for any signs that UK consumer spending is faltering. A weaker reading might indicate that consumers are now feeling the pinch from higher inflation, which has forced real wage growth down to a two-year low.

UK workers on the rise

Yesterday, Britain’s jobless rate figures were published for Q4 of 2016, indicating an 11 year low of 4.8% as firms keep hiring workers post-Brexit, but wage growth had reduced.

Yesterday, Britain's jobless rate figures were published for Q4 of 2016, indicating an 11 year low of 4.8% as firms keep hiring workers post-Brexit, but wage growth had reduced.

The number of people in work grew by 37,000 in Q4, confirming 31.84 million people are in work, up by more than 302,000 employees from a year earlier, a record high year-on-year. The number of people out of work fell by 7,000 in the same period, taking the total figure down to 1.6 million.

Wage growth was weaker, but expected, with average earnings excluding bonuses rising by 2.6% in Q4, down from 2.7% from previous reading. Wednesday’s report also shows that real wage growth in the UK economy has now tumbled to a two-year low, putting pressure on normal households.

EU and Canada finally approve trade deal

The EU and Canada look to have approved a trade deal, with members seemingly accepting the agreement. The trade agreement between the pair is expected to create a further 20% boost between economies from the existing £51 billion they share. Belgium’s ex-Prime Minister has welcomed the news, declaring that the pact is ‘tearing down tariffs whilst Trump makes it more difficult’.

CPI in US leaps to 5 year high

Consumer Price Index for the US leapt to a 5 year high, as higher oil prices took hold of the global markets. Januaryís numbers grew by 0.6%, meaning inflation in the US now stands at 2.6%, which is higher than forecasts predicted. Like the UK and Eurozone, the US see 2% as an acceptable level.

With Donald Trump wanting to get government investment as high as $1billion, inflation could set to rise further and break the 3% levels in 2017.

Data to come

This morning in Australia, the unemployment rate fell from 5.8% to 5.7%, giving AUD a slight lift. Data today is thin, with the US in the spotlight. US Housing Permits and Initial jobless claims are out for viewing, with the Phili Fed Business Outlook for consumption this afternoon.

Markets digest Yellen testimony

Yesterday Federal Reserve chair Janet Yellen delivered the semi-annual testimony on US monetary policy outlook.

Yesterday Federal Reserve chair Janet Yellen delivered the semi-annual testimony on US monetary policy outlook.

Overall Yellen stuck with her previous message from January repeating that the Fed expects to raise rates in the coming year if the US economy continues to perform. Yellen did point out that the Fed needs more clarity on the fiscal plans of the Trump administration and that the Fed have not as yet taken into account potential changes. This feedback aligns with the market view that tax cuts in the US will lead to higher interest rates and all eyes will now be on what Trump delivers. In terms of the next potential interest rate hike, it seems unlikely to be March and more fitting with a May/June hike given Yellen’s comments and tone.

Pound fell yesterday

The pound fell yesterday following lower than expected inflation data in the morning. The market was at the early stages of pricing in the possibility of a UK rate hike later this year but yesterday’s data has taken the gloss off this. Today we get further feedback from the UK economy with the labour market report. Here unemployment is expected to rise slightly and average earnings are also anticipated to edge lower which could weigh on the pound.

Elsewhere we have US retail sales and CPI inflation data this afternoon. Retail sales for January are likely to show a strong start to 2017 and inflation is also expected to edge higher. We also have further testimony from Janet Yellen as she addresses the House of Financial services committee.