Articles from November 2016



Stressful times for RBS

Today, we stand to see a volatile day across the wise money markets.

Today, we stand to see a volatile day across the wise money markets.

With the results from the UK Bank Stress Tests revealing that RBS failed all of the Bank of Englandís measures as they have come out as the worst performer amongst major UK lenders. The talk is that RBS will now have to embark upon drawing up a new capital plan and further progress made will be monitored by their regulators.

Further to this, other major banks/lenders have come out on top stating theyíve no issues to address. This includes the likes of Lloyds, HSBC, Barclays and Santander.

OPEC Meeting today

Furthermore, throughout the day we have OPEC meetings who represent 40% of the worldís oil supply. With any surprises following this, we could see some potential movement across markets. So far, Iraq has agreed to cut production meanwhile, Saudi have announced that for Iran, a pre-sanction freeze will be acceptable which could have a kickback on the import/export market.

Draghi due to speak today

Regarding the remainder of the day, weíre due to see Mario Draghi ñ Head of the European Central Bank ñ speak at 12:30 in relation to “the future of Europe” in Madrid. This will be followed by an early outlook to the US Non-Farm Payroll figures at 1:15PM with the official release lined up for Friday. We also have monthly GDP data from Canada at 1:30PM and the crude oil inventories for the US at 3:30PM.

Overall, we should expect a volatile day across major currency pairs with the possibility of a mid-week turning point.

Hammond sets sights on curbing negative Brexit impact on economy

Philip Hammondís Autumn statement yesterday was busy, as he set his sights on curbing Brexitís potential economic affect.

Philip Hammondís Autumn statement yesterday was busy, as he set his sights on curbing Brexitís potential economic affect.

He hopes to use £23 billion from the National Productivity Investment Fund on new homes, transport connections, research & development, and invest in the digital sector, hoping to keep the economy booming with the expected downturn in outlook long-term.

Some see it as a gamble due to the Government having to make additional borrowings. Government debt is now estimated to be in the region of £220bn more at the end of the current Parliament reign compared to March, when previous estimations were acknowledged, and the shock Brexit win has been a major factor in this new estimation.

Positive EU economic data

The EU economy had positive data to consume yesterday, as the Eurozone PMI data rose from 53.3 in October, to 54.1 in November; an 11 month high. The figures measure economic activity for the single bloc, which will no doubt give Mario Draghi a brief smile, as he debates another potential QE purchase boost shortly.

Fed minutes

The latest Fed minutes released yesterday have suggested that a number of key officials expressed a willingness to raise interest rates in December, as an improving economy can handle the move. The current probability is closing in on 100% certain change, come Decemberís decision.

Wise Money market data to come

US data is thin today, as Thanksgiving gets underway across the pond, so expect any USD related movements to be off the back of EURGBP volatility and key note speakers addressing their respective audiences. Data in the Eurozone is based around Germany, with Gross Domestic figures on show, as well as GBP Loans for House Purchases.

Autumn statement in focus

Today, chancellor Philip Hammond will deliver a keenly awaited Autumn statement.

Today, chancellor Philip Hammond will deliver a keenly awaited Autumn statement.

There is some expectation that the government will provide a fiscal boost. To continue the upward momentum in the pound, it will be looking for fresh fiscal stimulus through lower taxes and increased spending. The reality is likely to be more of a cautious update to spending plans given the ongoing uncertainties and the lower pound this morning.

Potential pressure on the euro

In Europe, we have the release of PMI data for Germany and France and it is expected that both manufacturing and services will hold up well. The euro may face some pressure on feedback from Italy where the referendum is in the balance. Prime Minister Matteo Renzi could seek early elections in the summer of 2017 if he loses the referendum vote.

All eyes are on the FOMC minutes

Tonight, we have the FOMC minutes from the last meeting. Currently, the market is over 90% confident that the FOMC will hike interest rates in December and this has been priced in. Therefore, attention for the minutes will be on the 2017 outlook and the scope for future interest rate increases. Any Fed projections will also be held against the Trump play in the markets which is anticipating a steeper curve in interest rate projections. In addition, we have the Markit PMI manufacturing index where a continuation of positive manufacturing feedback is expected.

Focus remains on Trump

Headlines continue to be focussed on the new president at the moment and yesterday, Trump reiterated his plans for “the wall” but admitted some of it may just be a fence.

Headlines continue to be focussed on the new president at the moment and yesterday, Trump reiterated his plans for "the wall" but admitted some of it may just be a fence.

After a weekend to come to terms with Trumpís victory for the US presidential seat, European markets are expected to be up this morning.
Theresa May vows to lead pro-business government

Over here in the UK, today Theresa May will vow to lead an “unashamedly pro-business government” and is promising to come down hard on the city bosses that ìgame the systemî. Sheíll be speaking at the Lord Mayorís banquet tonight and is expected to focus on her plans for making the UK an attractive opportunity for businesses to invest in, following Brexit.

Much busier week in the money markets

In terms of the markets, we have a much busier week coming up with a very heavy data calendar compared to last week. Today, weíve started the week with mostly Asian data already released in the early hours of the morning with just Mario Draghiís speech left this afternoon to look forward to. We saw a positive 0.5% result for Japanís quarterly GDP data ñ 0.3% above the previous and forecasted. Alongside the Bank of Japanís Governor Kuroda speaking, we saw some volatility in GBPJPY followed by a brief rally which has since calmed down slightly upon the UKís open.

Furthermore, we can expect some local data tomorrow along with some Eurozone and US data, throughout the day. Going back to Draghiís speech today, heís due to talk at the Italian Treasury in Rome at 4PM GMT ñ Weíd need Draghi to have a dovish view if we want to see GBPEUR rise further.

Quiet on US currency markets

We are quiet on the US currency markets and macroeconomics this morning whilst still trading off the back of all things Trump related. We are due the key release of retail sales tomorrow so today, we could see a lot of reservation in the market in anticipation for this or till the end of the week for Janet Yellenís Testament on Thursday.

 

Brexit countdown gets a legal twist

A High Court ruling has confirmed that only the parliament and not the government has the power to trigger Article 50.

A High Court ruling has confirmed that only the parliament and not the government has the power to trigger Article 50.

Therefore a parliamentary vote will be required before Article 50 is activated. The UK government will appeal the verdict and it will now go to the Supreme Court in December for review.

If upheld in December, this would lean towards of softer Brexit as the majority of parliament have a pro-EU stance. The second impact is that it will very likely delay the triggering of Article 50 due to the negotiations within parliament on agreeing the right deal.

The pound has benefitted from the news as from a financial markets perspective a softer Brexit is favoured. We can expect further short term volatility in the pound as we get further news and twists.

Interest rates left unchanged

Yesterday the Bank of England left interest rates unchanged and shifted their bias from easing to neutral which again mildly favoured Sterling. The BoE will adopt a “wait and see” approach and only if economic data markedly dips, will we see a further rate cut. It is also very unlikely that we will see any movement towards a rate hike despite higher inflation given the ongoing Brexit uncertainties.