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March 2016

CBI points to massive Brexit damage

Published: Tuesday 22 March 2016

  • CBI points to massive Brexit damage
  • Sterling stable but raft of data ahead
Either traders don't believe the CBI or they haven't read the report or they don't think Britain will exit Europe; whatever the case, Sterling hasn't reacted to their report. The Confederation of British Industry is claiming Brexit would cause a £100 billion drop in the UK economy and could cause 1 million job losses. Maybe this report is just being put on the pile with all the other reports that claim Brexit is either the miracle cure for or will be the death of the UK and it will sit there and gather dust until the referendum is past and will either be quietly shredded or held us as an 'I told you so' moment.
I think that is the problem with this debate, as with so many debates, all we the general public hear is the polarised and extreme views of people; most of whom have vested interests. The chances are it will be neither the saviour nor the death knell for Britain but most likely, a series of renegotiations, will re-establish Britain as an independent trader and we will soldier on as the island trading nation we have been for centuries.
For the time being, Sterling is relatively stable but that won't last for long. This morning brings UK inflation data at both the consumer and manufacturing levels. As the sharp energy price falls of last year start to edge their way out of the annualised data, we can expect inflation to tick up to 0.4% or thereabouts. It isn't threatening the BoE's target of 2.0% but it is a sign that things may be normalising. Sterling is likely to react positively to anything more than this number. We will also get government borrowing data but that is expected to show further borrowing. That is most definitely not what the Chancellor of the Exchequer wants to see.
This morning will also bring the German Purchasing Managers Indices (PMIs) band sentiment indices from the German IFO and ZEW institutions. As Germany is one of the few positive growth countries in the Eurozone, this is immensely important. The data is forecast to show a slight improvement on the previous month, so there is room for the Euro to improve.
This afternoon brings the US manufacturing sector PMI and a similar report from the Richmond Federal Reserve.  We will also get a couple of speeches from Fed members. So the USD will, if it moves at all, be driven by central bank and manufacturing sentiment. As such, nothing is certain and volatility is likely.
But you are too busy for all of this, you've got Easter Eggs to buy, weekend plans to make, US Presidential election news to avoid and Brexit comments to puzzle over. I'll let you get on with that then.

Travel offer

A Travel Agent had a fantastic week; record booking and a brilliant profit margin. As he sits and puts the stats together, he notices two elderly people looking through the short haul holiday section.
In a flash of generosity, he asks them to sit with him and explains he is in a great mood and wants to offer them the trip of a lifetime. "I know it's hard to make ends meet on a pension," he says, "so I would like to fly both of you to Bali, to see the amazing beaches, relax with the cool cocktails and swim in the crystal clear warm water. All expenses paid and I will cover the cost. Hell, I'll even throw in £500 of standing money for gifts and trinkets."
The couple are elated and the trip is booked for them to fly out the very next day.
Three weeks later, the Travel Agent spots the lady who went on the trip and calls her in to the shop. "Great to see you," he says. "How was that amazing trip? I am even jealous myself."
"Well," says the lady. "I was on my way to thank you. The flight was fantastic; they bumped us up to 1st class. The hotel was 5 star and the facilities were the best I have ever experienced. I can't thank you enough. I have just one question. Who was that old guy I had to share a room with?"
Market BST Data/Event Previous Expected
EUR 08:58 E19: "Flash" manufacturing PMI, index 51.2 51.5
EUR 08:58 E19: "Flash" services PMI, index 53.3 53.5
EUR 08:58 E19: "Flash" composite PMI, index 53.0 53.2
GBP 09:30 UK: CPI, % m/m (y/y) 0.3 0.4
GBP 09:30 UK: RPI, % m/m (y/y) 1.3 1.4
GBP 09:30 UK: Retail Price Index 258.8 260.2
EUR 10:00 Germany: ZEW economic expectations index 1.0 5.8

FX Research by David Johnson

Daily Currency Analysis with Denzil Rickerby

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