MORNING ROLL CALL
Sterling slides as UK govt announce date for Article 50 invocation, USA equity markets sell off, whilst oil falls 11% in March
Finally the “no turning back moment” has arrived for: the UK, its people, its society and its economy, as the UK’s government will invoke what’s termed “Article 50” on March 29th, in order to begin the approx. two year process of leaving the European Union. As to whether or not the gravity of the decision has hit the UK’s population, remains to be seen.
But far from being encouraged to go through a period of mourning and wear black armbands, no doubt the UK’s right wing dominated press and mainstream media, will be giving out free Union Jacks to their readership and whipping up patriotic jingoism. With no sense of irony, given that the Union may be broken up, if (more likely when), Scotland holds a second independence referendum due to leaving Europe.
Sterling had enjoyed a recovery in the Sydney/Asian session on Monday morning, which carried over to the early part of the London trading session, however, once the Brexit date was announced to the press, sterling quickly sold off versus its major peers. GBP/USD ending the day at 1.2357, at one point crashing through S3 to 1.2334. Versus CHF, AUD, NZD etc. the pattern was repeated; a violent reversal of sentiment across the board, versus sterling.
The consensus from the analyst community is mixed; many believing the sterling ‘damage’ is already priced into the market, others believing that GBP/USD could reach 1.15, with EUR/GBP reaching 95. As to how quickly any single prediction will prove correct is anyone’s guess and a guesstimate is the best anyone can offer in such an unusual and unstable situation, with so many other factors in play. But as many are quick to remind those with definitive opinions; “the UK hasn’t left yet”, and until the process is complete the damage is impossible to quantify or predict, as there’s a lot of political and economic events that can take place between now and 2019.
With the exception of the FTSE, which rose by a modest 0.07% in a correlated rise versus sterling’s drop, all the European markets sold off on Monday; DAX closed down 0.35%, CAC down 0.34% and the Euro STOXX 50 down 0.32%. There was no specific data releases which caused the fall, political events; Brexit and the looming French election, caused jitters and marginal profit taking amongst investors. Germany’s year on year producer prices came in at 3.1% year on year, whilst European labour costs rose by 1.6% YoY.
In the USA the SPX closed down 0.20% and the DJIA down 0.04%. The hawkish statements from Fed official Evans, late in the New York trading session, caused a slight sentiment shift as he appeared to rule in more interest rate rises in 2017; citing that the U.S. economy was strong enough to withstand two to three more rises this year.
The dollar index slipped by circa 0.1%, its fourth daily loss in series. EUR/USD ended the day at circa 1.0731, down approx. 0.1% on the day. USD/ JPY fell to end the day at circa 112.49, yen enjoyed gains versus the majority of its peers, throughout Monday’s trading sessions.
WTI oil fell on Monday, it’s now lost 11% in March, the worst monthly loss since July, ending the day at $48.39 per barrel, after (at one point) falling through the 48 handle. Gold continued its recent gains, having climbed from $1119 per ounce on March 9th, it’s now recovered to $1234.5, a 3% gain.
Economic calendar events for March 21st, all times quoted are London (GMT) times.
09:30, currency impacted GBP. Consumer Price Index (YoY) (FEB). The headline rate of inflation in the UK is expected to reach 2.1%, an increase on the 1.8% in Jan.
09:30, currency impacted GBP. Retail Price Index (YoY) (FEB). Both the CPI and RPI are indicating that the UK’s consumers are stretched; given that wage rises are at circa 2.1% YoY. RPI is forecast to come in at 2.9%, ahead of the 2.6% print in Jan.
09:30, currency impacted GBP. Producer Price Index Input n.s.a. (YoY) (FEB). Listed as a low impact data event, the UK’s input increase is running at over 20% annually. Any significant increase on this could damage sterling sentiment.
09:30, currency impacted GBP. Public Sector Net Borrowing (Pounds) (FEB). The U.K. enjoyed a surplus of £-9.8b in Jan, a reversal to a £2.8b deficit is expected for Feb.
12:30, currency impacted CAD. Retail Sales (MoM) (JAN). Retail sales are forecast to have improved in Jan to 1.3%, from a -0.5% fall in December.
12:30, currency impacted USD. Current Account Balance (4Q). Analysts are conditioned to expect ever increasing current account deficits from the USA, the prediction is for a negative print of -$128.2b, from -$113.0b previously.
16:00, currency impacted USD. Fed’s George Speaks in Washington on U.S. Economy and the Fed. Should the hawkish stance broadcast by The Fed’s Evans be continued, then USD may become volatile.
22:00, currency impacted USD. Fed’s Mester Speaks at University of Richmond. Mr Mester could also continue a hawkish narrative, which may impact on USA equity markets and the value of the dollar and commodities.
