ECONOMIC HIGHLIGHTS FOR THE WEEK AHEAD
- Monday: Fed speakers: Quarles, Dudley, Mester
- Tuesday: US Consumer Confidence, API Crude Oil Inventories
- Wednesday: US GDP (Final reading), Trade Balance, Wholesales Inventories, Pending Home Sales, DoE Oil Inventories
- Thursday: GE Unemployment Change, UK GDP, CA GDP, US Weekly Jobless Claims, PCE data, Chicago PMI, University of Michigan Sentiment (2nd reading)
- Friday: Good Friday – markets closed
A quiet week ahead in terms of the scheduled economic calendar. This week is also shortened by the Good Friday closure, so it is worth keeping in mind early month and quarter-end flow over the coming days. A further consideration is the end of school term, so if the quietness of the commute to work this morning is anything to go by trading volumes may also be lower than average.
Brexit: what happens next?…
A transitional deal was formally agreed. This means that once Article 50 elapses on the 29th of March 2019 the UK will have until the end of 2020 to formalise a more thorough plan of Britain’s exit from the EU.
The effect of last week’s agreement was clearly evident with the Pound appreciating sharply against the USD. However, the negotiations were not the only reason for the upward movement with underlying improvements in UK economic data (wages) coming in the context of increasingly aggressive protectionist talk from the US administration also playing its part.
Going forward the near-term prospects for cable (GBP/USD) look bright. With inflation easing off recent multi-year highs, and wage growth finally picking up, the UK consumer is seeing some reprieve from the recent squeeze on household incomes.
In addition to this the Bank of England remains on track to execute its next 25bps increase in UK interest rates this May, which when put into context of a weaker USD amid tough talk on global trade, and a further deterioration in the US fiscal situation, makes for a compelling case for cable to rise.
Is Trump’s bark worse than his bite?…
Fresh fundamental news flow remains light with the dominant theme remaining that of the US administration stance on global trade. Last night the US Treasury Secretary Steven Mnuchin delivered a more diplomatic approach stating that he is optimistic the US can reach an agreement with China that will avert the need for Trump to impose tariffs on at least $50bln of goods.
Although these words may have calmed the situation for the time being the market appears unconvinced and the USD has continued to weaken this morning. The weakness in the US currency also comes as the fiscal position of the country continues to deteriorate with Trump signing a new $1.3trl spending bill late Friday in order to avert yet another government shutdown.
Looking specifically at the equity market, this week maybe interesting for different reasons. Firstly, Facebook and other related social media stocks were hit hard last week after coming under fire for their involvement with data harvesting firm Cambridge Analytics. However, having seen Facebook shares lose some 10% in market capitalisation (circa $75bln) will the lack of further developments now see their shares steady and consequently bring back some stability to the technology sector and S&P.
Secondly, we are operating in a holiday shortened week marking both month and quarter-end. Since the all-time highs that were seen on the 29th January we are now 8.5% off that level and down 1.5% from the opening price of 2018. As such, it will be interesting to see if equities can pare back some of the recent lost ground, but this would be largely contingent on no further escalation in the Trump trade narrative.
Geopolitics keeps oil near YTD highs…
Reports from the weekend suggest Saudi Arabia intercepted seven ballistic missiles fired by Houthi forces in Yemen, marking the latest escalation in the tensions between the two countries. The attacks are not uncommon and coincide with the third anniversary of the Saudi-led coalition’s intervention in Yemen’s civil war, according to Bloomberg.
However, this does not detract from the fact tensions remain high in the region with the latest developments occurring during Saudi Crown Prince MbS tour of the US and with John Bolton now assuming the role of national security adviser to the President.
If you missed the morning briefing today you can access the recording HERE.
Have a good week ahead and enjoy the Easter break.