Sterling Stifled Once Again By Brexit Chatter
March 15, 2016
Yesterday's data light calendar left investors with only their own imagination and conviction to work out which direction to trade – needless to say, armed with only those, it was a very quiet day.
Currencies were largely range bound, but Sterling has repositioned itself lower, following a couple of days of gains late last week. The Pound is suffering, even in a risk-on environment, because of the Brexit chat. Yesterday Boris Johnson lambasted Barack Obama, saying it would be “outrageous hypocrisy” if the US president were to use his visit to London next month to pitch for the UK to stay in the Union.
Meanwhile, there is concern that if the government don't do more to persuade banks to lend heavily to the North Sea oil sector, these companies might go under, costing the UK economy $250bn. Sir Ian wood, talking to The Telegraph, has said that “I would certainly like to see Government leaning on banks – in whichever way they can lean on banks – to make it clear that this is a temporary downturn. If banks take a hard line on putting companies out of business then government should be pretty unimpressed”. Of course, the government could also do something in tomorrow's budget to come to the industry's aid.
Across the Channel, President Hollande has been forced to water down his employment reforms after unions put him under severe pressure. The sweeping changes that were planned were largely welcomed by business leaders, who find hiring difficult because firing is nigh on impossible under current laws. The U-turn calls into question Mr Hollande's effectiveness in his last years as president, but more worryingly leaves France unable to help themselves to boost productivity.
In Brazil, almost three million people have taken to the streets, calling for President Dilma Rousseff to stand down/be removed from office. The pressure is now on Brazil's congress to carry on with their impeachment proceedings against her. The Guardian has more.
In the US, Morgan Stanley have cut their forecast for stock market rises in 2016. They now forecast that the S&P500 will only grow another 1.5% over the course of the year. The forecast comes at the same time that they say the Dollar still has 10% worth of gains left to make in its current bull market run, with the prospect of Fed rate rises keeping the pressure on, even if they don't actually raise rates immediately.
The two day FOMC meeting starts today and we'll know tomorrow night whether they are ready to raise again. It's unlikely that they will and most of the market thinks that they'll give clues about a June hike instead. Despite the market volatility, the economic data out of the States would suggest that the Fed could raise rates again and Main Street probably wouldn't suffer. The problem is that Wall Street would probably throw their toys out of the pram and this is the tough balancing act that Janet Yellen and co. are going to have to achieve.
Overnight we've seen the minutes from Australia's last central bank meeting and the headline takeaway is there is more room for policy easing, with low wage growth and inflation providing a stable platform for another cut. The Bank of Japan left policy unchanged, but continued with their rhetoric that they will act again if they see fit.
Today we look at European employment numbers and US retail sales data, but most traders are looking for the larger macro news tomorrow from the Fed, so we won't be surprised to see markets trade slightly lower with a bit of pre-Fed nerves.
Have a great day