IFX Market Report
Monday 13th February 2017

Market Report

The pound strengthened last week as ‘hard-Brexit’ and the planned submission of Article 50 plans was approved. The movement seemed decisive, with a swift majority decision through parliament, that generated minimal resistance. GBP then closed the week with a string of positive data, Manufacturing Production, Goods Trade Balance, Construction output and Industrial Production all beat forecasts and posted strong numbers. The week ahead is busier than the last, with Inflation (CPI & RPI) data due on Tuesday morning at 09:30 and unemployment and average earnings due on Wednesday, also at 09:30.

With the future of the UK economy coming into focus and further uncertainty now removed surrounding the exit talks, it is no surprise that the GBP has been able to hold onto its gains of last week. The USD definitely has the power to fight back, and as the world waits to see what the revolutionary tax change that Donald Trump hinted at last week is, and when it will be implemented, this week has some fundamentals that may help shore up the currency. These will be in the form of the January Producer Price Index (PPI) on Tuesday, the January Consumer Price Index (CPI), Retail sales on Wednesday and Housing Data on Thursday

GBPUSD traded at session lows of 1.2346 on Tuesday morning and following the approval of the Brexit bill and some strong UK data, the pound made consistent gains to open this week, 1.31% higher at 1.2508. The cross made an attempt at a breach towards 1.26 however topped-out at 1.2535.

GBPEUR also made strong gains last week as the cross made advances higher for the same reasons as 'cable', GBPEUR traded at 1.1574 on Tuesday, however rallied in the second half of the week to gain 1.58% and now trade at 1.1757.

Data released this morning from credit card company Visa, has pointed towards a slowdown in consumer spending, as their monthly revenue numbers dropped by 2.5% from December and added just 0.4% to the January 2016 numbers, this is officially a five-month low and the slowest annual growth in three years. Kevin Jenkins, Director, UK & Ireland commented: "Overall growth on the High Street has been disappointing for some time," and they forecast; "a pick-up in terms of inflation and a down-tick in terms of wage growth", which could squeeze household disposable income and thus spending.

The FTSE 100 has popped on the open this morning, driven higher by the increase in the indices four largest mining shares. Glencore (+1.8%), Antofagasta (+1.8%) BHP Billiton (+1.6%) and Anglo American (+1.5%) are all trading a least 1.5% higher this morning as European indexes post strong gains and miners continue to perform well on higher copper prices. The FTSE is 0.48% higher at 7,259.48.

Worldwide News

United States President Donald Trump met with Japanese Prime Minister Shinzo Abe over the weekend as the two G7 leaders met to discuss U.S. - Japanese trade during a state visit from PM Abe that included a round of golf. During the visit, Trump toned down his aggressive rhetoric regarding among others, Japanese currency manipulation and reconfirmed his commitment to his 'closest ally in Asia'. The Japanese Nikkei 225 has spiked overnight since the meeting by 0.5% to 19,459.15 buoyed further by the data out of Japan at 23:50 last night, that shows the economy growing for the fourth straight quarter. USDJPY is 0.82% higher this morning at 113.75.

The USD had a mixed performance last week as unemployment claims dropped to close to record lows, beating expectations. However it closed the week with the University of Michigan Consumer Sentiment dropping to the lowest levels seen for 3 months, which caused concern. When the numbers were high Donald Trump took credit for it, now with this reading showing a drop from 98.5 to 95.7 (expected 97.9) I doubt he will be too vocal about the results. Excitement over when trumps tax announcements will come and a positive meetings with the Japanese Prime Minister have helped pick the dollar back up and put it back on track.

Last week we saw the EUR lose a lot of ground against the USD and the downward move appears to be a reversal of trend. These fears that the downward momentum will continue come from the fact that the political uncertainty in the Eurozone will not stop until after the various European elections are completed. The Dutch election is in March, the French is in April and the German election not due till September, uncertainty will keep a strong hold of the EUR. Also we are starting to see the USD strengthen as Trumps economic plans appear to not be far away from being announced. He hinted last week that a 'phenomenal' tax announcement was 'weeks' away and the markets moved on that alone.

EURUSD had a troubled trading week last week as the pair opened at 1.0754 and by Friday was already trading 1.39% lower at 1.0607 as Eurozone Geo-political uncertainty and an optimistic view of Donald Trump's tax initiative combined to force the pair lower. Nevertheless the cross trades of the floor at 1.0640 this morning.