Previous Day's Market Highlights
Sterling struggled on Friday after its recent rally, pulling back after hitting key resistance levels at €1.14 and $1.30. The reasons for sterling’s slide were twofold. Firstly, investors took profit after Thursday’s rally while secondly market participants were scaling back their positions in the pound before the weekend due to the risk of headlines in the Sunday papers changing market sentiment toward the pound. Over the course of the day, the pound lost 1% against the dollar while losing 0.75% against the single currency. Despite this, the pound was still on track for its best weekly gains against the euro since December 2017.
Further adding to sterling’s decline was poorer than expected retail sales, which declined at 0.9% on a month-on-month basis in December, showing that the crucial festive trading period was as promising as previously thought. Elsewhere, the economic calendar was limited with only Canadian CPI of note, surprising to the upside showing inflation at 2% on a year-over-year basis in December. Despite the uptick in CPI, the data is unlikely to alter the Bank of Canada’s thinking that inflation is likely to remain at, or slightly below, target for the majority of the year due to the impact of falling energy prices.
Away from FX, equity markets in Europe and the US gained over 1.5% as Bloomberg reported China was prepared to go on a six-year buying spree with the aim of increasing imports from the us by more than 1tln USD to bring its trade surplus with the US to zero by 2024. Crude oil prices also firmed, with gains aided by the announcement of a decrease in OPEC production showing compliance with planned cuts.
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Today's Market Highlights
Today’s economic calendar is lacking in significant economic data therefore focus is likely to turn to the government’s announcement of their ‘plan B’ for Brexit after last week’s vote on the withdrawal agreement failed in parliament. While it remains unclear exactly what plans the Prime Minister will put forward, reports over the weekend suggested that she is likely to outline plans to turn the Irish backstop into separate, standalone treaty while officials have only reported that the PM was listening to other parties in cross-party talks and not given any clues as to what was discussed. The ‘plan B’ will be voted on by the Commons on 29th January, 2 months before Britain leaves the EU. Despite this, markets are still pricing a softer Brexit and many investors now believe that an extension to article 50 is the most likely outcome.
Elsewhere today, this morning’s Chinese GDP release showed the economy grew at 6.6% in 2018, in line with forecasts but the slowest pace of official economic growth in 28 years. US markets will be closed in observance of Martin Luther King Day.
Looking ahead to the rest of the week, highlights include labour market reports from the UK and Australia as well as a couple of central bank meetings, from the Bank of Japan and European Central Bank. While the ECB are set to keep policy on hold and present a largely unchanged monetary policy statement, expectations are for the BoJ to cut their inflation outlook due to falling energy prices. With inflation already sluggish in Japan, such an outcome would cement the market’s view that the BoJ are unlikely to adjust monetary policy for the foreseeable future.
Finally, the annual World Economic Forum in Davis is held from Tuesday onwards. Though not as star-studded as recent years, with no representation from the US and both PM May and President Macron remaining at home, market participants may be given some food for thought from the various other leaders and central bankers speaking. This year’s theme is ‘Globalisation 4.0’.