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November 2016

Sterling remains strong as Brexit continues to drive sentiment

Published: Monday 28 November 2016

  • Sterling remains strong as Brexit continues to drive sentiment
  • Euro struggling as Anti-EU sentiment rises

It’s been interesting to see the confusion in people’s comments regarding the demise of Fidel Castro. Was he a tyrant? Was he a revolutionary freedom fighter? Was he the natural antidote to American imperialism? Was he responsible for the situation that led to the nearest the world has ever come to nuclear destruction? Probably all of the above to some degree or other, but he was also the leader that trained African doctors, sent Ebola treatment staff to affected regions, promoted the arts like few others and many other positive things. As with so much in politics, stark black and white does not exist; multiple variations of grey are more common.
 
The Euro remains subdued as traders try to assess the potential threat from the French presidential elections and the Italian referendum. Anti-EU sentiment seems to have found a voice in the wake of the UK’s Brexit vote and we are seeing that sentiment manifest itself at every opportunity. This weekend’s Italian referendum could well be a protest vote against the EU and that would make next week very interesting. European traders will also have to contend with the Eurozone unemployment, inflation and consumer confidence data this week. The forecasts suggest little inflation but continuing dire unemployment figures and margin change in consumer confidence. Overall, there is little in this data to move the euro but surprises are always market moving.
 
For this week, we are spoilt for choice when it comes to market-moving events and data. In the UK, we have a debate over the EU exit in the House of Lords and heaps of comment due in relation to the latest attempt to hijack the referendum result. Apparently, leaving the EU and leaving the European Economic Area are two separate acts, and some lawyers are attempting to prove the referendum didn’t ask about both. Sterling has, for the time being, shrugged that challenge off.  This week also brings UK consumer confidence and manufacturing confidence data releases and we’ll get mortgage approvals data as well as a by-election in the Richmond Park constituency, triggered by the resignation of Zac Goldsmith from the Conservatives. He is running as an independent.
 
Across the Atlantic, this is a week of lots of speakers and modest levels of data, but it finishes with the US employment report and that’ll be closely followed. There are all manner of Federal Reserve speakers this week, as the markets try to determine whether US interest rates will rise again on 14th December. The sales over the last few days reflected more people taking advantage of Black Friday deals, but they spent less per head. That is probably a decent reflection of the US economy and it explains why the Federal Reserve is in a dilemma over their rate hike plans. The US Dollar is strong as a result of the expected hike, so will weaken if that expectation is dented in some way. There is scope for that in Tuesday’s release of the second estimate of US growth data.
 
And Canada also publishes employment data on Friday. The Canadian data is expected to show zero or marginal change, but, before that is published, we will also see Canada’s economic growth data. The growth rate to September is expected to be much stronger than August’s figure of 1.3% and that could easily strengthen the weak Canadian Dollar.
 
And we can’t finish without commiserating with Lewis Hamilton for doing everything right but missing out on the F1 Championship by just five points. Well done to Nico Rosberg on his first win. Keke must be a very proud dad.
 

Midwest

 
There is a knock at the door and Mary opens it to see a policeman standing there.
 
The Policeman says, “I am sorry to be the bearer of bad news, Mrs Jones, but it looks like your husband has been in a horrible accident.”
 
“That may be true,” says Mary, “but he has a great personality and is good with the kids.” 
 

Today's Major Economic Releases
 

Market BST Data/Event Previous Expected
EUR 09:00 EU: Money Supply year-on-year 5.1% 4.4%
EUR 09:00 EU: Private Loans year-on-year 1.8% 1.8%
 EUR 14:00 European Central Bank President Draghi speaks    
 
Daily Currency Analysis by David Johnson

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