Market News & Insights
21 February 2018

Eurozone PMI Wobble

You could be forgiven for shuddering each time the ‘B’ word is mentioned in the press, but the simple fact is, Brexit negotiations are starting to prove their weight in financial markets as talks reach a more significant stage. Just as Pro-Remainers have seen a softened tone emanating from talks, the Conservative sub-committee of Brexiteers has released its recommendations a smooth exit from the EU.

But what is the effect here on markets? Well, once the Brexit sub-committee meets at Chequers on Thursday we should see a more united stance on Brexit from the key decision makers. It’s worth noting the timing of these events, as Theresa May looks to outline her strategy in a speech next week. Sterling could gain some traction if we see a more upbeat and confident tone towards Brexit, as we have seen in the past a soft Brexit stance favours the pound. Mark Carney and other MPC members are set to testify in front of Parliament’s Treasury committee on the back of hawkish comments made in their Quarterly Inflation Report (QIR) last week. The combination of robust attitudes from Brexit negotiators and Mark Carney’s team sets the pound up for potential upside. Before that, later this morning we see some key UK economic releases in the form of the ILO Unemployment rate along with some important wage data in the form of weekly earnings. Market consensus is for wage growth to remain at 2.5%, the significance being still below the current inflation rate of 3.0% and therefore, negative real wage growth as per the definition.

Eurozone PMI figures out this morning, and the release showed another drop off. The survey throughout 2017 highlighted the positivity around the Eurozone’s growth and we’ll be monitoring it closely throughout the year to gauge if the higher euro is cause for concern here. A fall in the survey indicates a slowdown in activity, and further falls here could put the euro at risk on the downside.

Across the Atlantic, FOMC minutes will be front and centre. Whilst the US dollar has risen in recent days, US risk-geared assets such as stocks and gold prices fell, highlighting ongoing concern amongst analysts around an aggressive rate hike programme from the Federal Reserve. If Crude Oil Inventories continue to disappoint then we will see added hesitancy amongst traders and the US Dollar might be in for a bumpy end to the trading week.