Market News & Insights
2 March 2018

What Way For May?

There’s plenty of event risk for the euro this weekend but yesterday’s price action in the Euro showed little concern. Perhaps it was more a story on other currencies, the USD was broadly weaker despite firmer data while sterling has struggled in the face of negative Brexit news flow. Market sentiment was heavily to the downside and in continuation of how February ended, global equities were under selling pressure to welcome in March. Later in the day comments from US president Trump citing tariffs of 20% on steel and 10% on aluminum stoked fears of a trade war with China and further added to the broader risk off sentiment. This has continued overnight, and in currencies the JPY was an outperformer, the safety linked currency benefitting from safe haven flows and also some decent employment data which was released overnight.

Italian elections and a vote by the German SDP on a collation will occupy the papers headlines over the weekend so volatility to welcome in next week is almost a certainty. The euro however staged a recovery through yesterday’s session, advancing almost 1% from its lows vs the USD, and gaining some 1.5% vs the struggling pound over the last two days. Data wise yesterday’s releases were more or less on par, weaker Italian and French manufacturing data was offset by a slightly stronger German print, while Eurozone unemployment was as expected at 8.6%. Not much to get our interest from Eurozone data this morning so our real focus will be on the weekends developments.

UK PM Theresa May will speak today and outline her framework for Brexit. GBP has found itself under considerable pressure thus far this week and UK economic data continues to lag its peers. Construction PMI figures released just now were slightly better than expected and has helped GBP stop the rot somewhat but without sounding like I’m constantly repeating myself, GBP appears to care little about really data and is all about Brexit perception. Any sign of conciliatory positioning from PM May relating to transition period, borders and EU citizens will be favorable for GBP. However, should we see May look to take a hard line, should we see any pull back on EU citizens’ rights, or anything that may indicate negations may turn contentious then the pound has further selling, expecially as protectionism and trade wars are a hot topic in the last 24 hours.

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