IFX Market Report
Friday 3rd February 2017

Market Report

The Bank of England Monetary Policy Committee yesterday put a 'hold' on their key base rate of 0.25% and announced an increase in the UK growth forecasts. The central bank increased their forecast for 2017 GDP to 2%, following a 'surprise' performance of the UK economy post-Brexit.

Deputy Governor of the BoE, Ben Broadbent justified the decision by saying; "In August we did some surveys that showed business and consumer confidence were extremely weak and had fallen markedly in July. "But subsequently those surveys bounced back and more generally, what proved particularly resilient was household spending in the second half of last year."

The City of London is currently under threat, as a number of financial services firms consider their future in London. While BoE Governor Mark Carney did predict "twists and turns" in the economy after the referendum, he also said a 'bank exodus' was unlikely. Nevertheless recent developments have shown that many banking heavyweights including Citi Bank and HSBC are already committed to reallocating, at least a proportion, of their workforce abroad.

Kully Samra, MD at Charles Schwab UK spoke this morning on the matter; "We don't know what Brexit is going to look like,"... "Just taking this job situation in the financial industry I would agree with Loyd Blankfein [the Goldman Sachs chairman] that it's probably more likely that a lot of those jobs will move back to New York."... "Those kind of twists and turns... we just don't know what they'll look like in terms of our industry or other industries,".

Sterling came under pressure yesterday as the pound made more 1%+ losses against both the USD and EUR. GBPUSD opened at its highest rate since December 14th yesterday at 1.2706, however crashed 1.50% by mid-afternoon in London to trade at 1.2518. This morning the pair has lost further ground and currently changes hands 1.70% below yesterday's open at 1.2493.

GBPEUR made similarly large losses yesterday as the pair crashed 1.37% from the opening rate of 1.1753 in the morning to 1.1594 in early afternoon. Unlike 'cable' GBPEUR has made a modest recovery overnight and trades back above 1.16 at 1.1630.

Worldwide News

U.S. initial jobless claims released yesterday at 13:30 showed that the number of unemployment benefit claims dropped, well below, both the December number of 260k and the forecast of 250k with a 246k reading. The weekly initial jobless claims have now held below 300k for two straight years which is the strongest consistent performance since 1970.

Donald Trump has vowed to "be greatest jobs president God ever created" and with the U.S. employment rates at decade lows, the market is dubious to whether there is either he has the economic policies or the sufficient slack in employment, for him to do so. The U.S. release their monthly Nonfarm Payroll report and unemployment rate this afternoon at 13:30, Nonfarms are forecast to increase from 156k to 175k and the unemployment rate is expected to hold at 4.7%.

Donald Trump's newly created 28-member 'economic advisory group' meets at the White House for the first time later today. Uber technologies CEO, Travis Kalanick yesterday quit the group following mounting criticism over the President's 'travel ban', although CEOs from JP Morgan, GM, IBM, PepsiCo and even Tesla CEO Elon Musk are expected to be in attendance.

EURUSD hit its highest trading level since the 8th December yesterday as the cross rallied in the morning to gain 0.48% and hit a 2017 high of 1.0829. Nevertheless the USD weakness that both GBP and EUR had been benefitting from earlier in the week, reversed yesterday afternoon and the USD rallied 0.79% to now change hands on EURUSD at 1.0744.

Markets opened in China for the first time today following their Lunar New Year celebrations. The data calendar will be dominated by the 'high impact' release of U.S. Nonfarm Payrolls at 13:30.