Markets awaken this Monday morning with a spring in their step. Last week had the feeling of a new beginning, with even ECB’s President Mario Draghi straying from his downbeat rhetoric and acknowledging “our Monetary policy has been successful.” In the US, Friday’s Nonfarm Payroll figures kept the momentum going for the Fed’s 3 hike rhetoric by beating analysts’ expectations, increasing by 235K vs 190K expected. The unemployment rate also fell to a new low of 4.7 percent. The readings have all but cemented this week’s 25bps rate hike and now markets will focus their attention on the dot plot, looking for any hint of acceleration in the path of interest rate normalisation.
The euro also sprung into action, jumping to fresh weekly highs on Friday on the back of easing political risk and a Reutuers article which reported that the ECB had discussed the possibility of raising rates before the end of its QE programme. According to the article some ECB policy makers had suggested hiking rates before the end of the current QE programme, however the apparent discussion was brief and was not broadly supported. It would be a strange move if the ECB were to continue to ease with QE and then hike rates at the same time, so I would take this report with a pinch of salt. Against the dollar, the euro rose back above 1.07 briefly this morning, while also breaking below 1.14 (0.8771) briefly against the pound.
In the UK where markets are continuing to deal with the messy divorce proceedings around Brexit and a possible Article 50 trigger. Both the House of Commons and House of Lords will debate and vote on the bill today. The bill will go back and forth between the two chambers until both sides agree, which means that as early as this week, Theresa May could formally tell the EU that Britain is ready to begin negotiations.