Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
Janet Yellen concluded her two day testimony to the US Congress with her appearance before the Senate Banking committee yesterday. There was little more of note after Wednesday’s release as she continued with similar messaging and dovish tones.
|10:00||EU Trade Balance|
|13:30||US CPI and Retail Sales|
|15:00||US University of Michigan Consumer Sentiment and Business Inventories|
Janet Yellen concluded her two day testimony to the US Congress with her appearance before the Senate Banking committee yesterday. There was little more of note after Wednesday’s release as she continued with similar messaging and dovish tones. Continuing on the central banking theme, we also had some commentary from European Central Bank's (ECB) Rimsevics, who suggested that QE will continue for a 'few years'. This was then followed by news that Draghi will speak at the Jackson Hole Symposium on August 24-26th in what will be his first visit for 3 years.
After a fairly quiet week regarding Brexit news ahead of the next round of talks on Monday, we had the first acknowledgement of the UK’s financial obligations to the EU after Brexit. A statement was issued by a Brexit minister Lady Anelay and was seen by Brussels as a potentially important development and more conciliatory ahead of negotiations next week. With Britain’s exit from the bloc scheduled for March 2019, it was feared that any delays around financial settlements would waste valuable time.
Next week the big event is the ECB’s governing council meeting on Thursday. Markets will be watching closely for any signals from the ECB in relation to upcoming monetary policy action, in particular for any comments from Draghi during his press conference. Any firm or unexpected comments could cause volatility in GBPEUR rates.
With no data out in the UK today, focus shifts onto the key releases in the US and the potentially Dollar moving CPI inflation and Retail sales at 13:30, as well as consumer confidence at 15:00. Given the softness of recent inflation readings markets will be closely watching the Consumer Price Index release for further clues as to whether the recent run of disappointing inflation figures are transitory as suggested by the Fed. If the numbers again prove to be disappointing, the Dollar could suffer as markets may start to question the Fed’s rate hike path.
British American Tobacco plc (BTI), the British multinational tobacco company headquartered in London, is one of the world’s five largest tobacco companies. BTI has a market-leading position in over 50 countries and operations in around 180 countries. It also has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. Over the years BTI has seen an incredible performance and in the last 6 months it surged a further 17%. BTI shares are currently trading at $68 but analysts have given it an average price target of $78.93. Unlike recent Pound sellers, BTI investors are enjoying great returns on their shareholding. I guess not everything in the UK is falling. Speaking of the Pound, it has seen a pickup in the last 6 months as well. Looking at GBPUSD 6 months ago, it was trading as low as 1.2060, whereas today it is trading in the 1.29s. Having said that, unlike BTI shares, analysts (according to Bloomberg) on average expect GBPUSD to be trading at 1.27 by the end of 2017. To make the most of current Sterling levels and to discuss market forecasts for the Pound, call the Investec FX team on 0800 055 6339.
Yesterday morning the UK released their second estimate Q4 GDP figures. They were revised down to +0.4% from +0.5%, whilst the broad consensus and our own economist forecast had been for it to be unchanged at 0.5%.
Given that an employment data-led shift in interest rate expectations was the trigger for the ‘correction’ in equity markets earlier in the month, it is logical to have reasoned that a strong CPI print for the states on Wednesday last week, and its ultimate implications in the mind of FOMC members, may have sparked a second wave lower.
Brent recovered sharply last week, particularly after the weekly US inventory numbers revealed a lower than expected increase in US crude inventories of only 1.8m barrels of crude and 3.6m barrels of gasoline while at Cushing, the delivery point for US crude futures, there was a fall inventories of 3.6m barrels.
The independent International Energy Agency has just released its latest monthly report last week, which covers the month of December 17.
Zinc has continued to set successive highs and this morning reached 3,481 $/MT, a new fresh 10 year high. A weaker USD across the board has been the driver for strength across the complex.