February was a top contender for the most risk adverse/volatile month markets had seen for almost 8 years, with the exception of a couple of risk event driven months in that time frame(Brexit vote, US election etc). The month closed off with equities facing some heavy selling to finish the month, confirming the general risk off and high volatility sentiment with US yields pressing multi year highs and markets expecting rate hike from the BOE and ECB in the next 18 months. The USD has shown signs of bottoming out through February as well, with the USD index pressing fresh February highs yesterday to close off the month up over 2.75% from the lows posted mid month.
Appetite for the euro appears to be fading, slowing inflation this week not helping matters and EURUSD is on the verge of a technical breakdown, with major event risk ahead in this weekend Italian elections. Sterling found itself under considerable pressure and the finger was firmly on the sell button yesterday as the EU’s Barnier laid out the EU’s stance on potential framework and highlighted the differences on where the EU vs the UK stand in relation to passporting and EU citizens’ rights.
Tomorrow is really building up to be major event risk for Theresa May, the UK and GBP. And it is currently difficult to see a winning stance in any form from May. The EU and Labour are putting mounting pressure on May to at least toe a softer line for Brexit, while Brexiteers are still looking for a firm stance and contentious issues like the NI boarder continue to persist. All the uncertainty means that the UK economy is stuck for direction, there have been notable declines in sentiment and FDI and to be quite honest clarity is completely lacking thus impacting the broader economic outlook for the UK. Manufacturing PMI data on the wires today but it’s difficult to see past Brexit sentiment for GBP direction.