What have we here! Scarlet Johansen riding in on a shiny unicorn, big hitters landing in Beijing and German recession. Alright, I admit, the unicorn wasn’t shiny but still, these are three shocking headlines that have each stamped their mark on global foreign exchange markets today.
Prime Minister Theresa May has hosted her first Cabinet meeting of the year. With a lot to discuss with a heavily divided group of ministers, Sterling drifted onto the back foot upon news of a lack of definitive progress and resolution. The star of the Avengers crept her way into headlines following the reported remarks of Environment Secretary and Leave proponent, Michael Gove. Speaking out at those still disaffected by the incumbent deal due to be voted upon next month, he and Justice Secretary David Gauke are reported to have collaboratively compared the dissident members to middle-aged men holding out for movie star Scarlett Johansen riding in on a unicorn!
The lack of apparent consensus building within Theresa May’s own cabinet dashed hopes in the afternoon session that she could get a parliamentary majority next week. It’s not exactly a revelation that the Conservative cabinet is deeply divided. Its members have been public in their endorsements of various versions of Brexit: from a second referendum and most permutations of soft-through-hard Brexit. If May cannot get a full and competent force behind her for the vote informally scheduled for Jan 15th, she’s destined for trouble. Critically, a government spokeswoman has denied reports that the UK is enquiring with the European Council about the permissibility of extending the Article 50 deadline.
In Beijing, President Xi Jinping’s senior advisor has arrived at talks between the US and Chinese delegations that are sat in order to discuss a resolution to the so-called trade war. The presence of the unscheduled visitor and contributor has suggested to markets that Chinese authorities are keen to progress with a serious deal. The overnight news weakened the US Dollar during the US and Asian sessions to the similar detriment of the Japanese Yen and the Swiss Franc, two other classic safe haven assets, as global risk sentiment softened. Today is the second and final day of scheduled talks so pairs of eyes will be spit East and West as markets look for domestic reactions to talks overnight and into tomorrow.
The Euro has remained well-bid despite dismal economic data publications at 10AM this morning. German industrial production plummeted 1.9% on the month in November, reflecting an aggregate annual decline of 4.7%. Industrial and construction sectors are national champions of the industrious core EU member meaning that today’s readings were of heightened salience to an already shaky European economy. The market reaction to the news was muted in foreign exchange and equity markets as investors instead looked towards the progress in trade talks in Beijing as an overwhelming positive force for global trade. The performance today was serious enough to even hint towards a minor technical recession in Germany during H2 of 2018. With an already over-spilling basket of risks within the Eurozone, the EU could really do without its strongest and largest economy drifting out of positive growth.
Discussion and Analysis by Charles Porter
The only haven The avoidance of a hard landing according to many projections of most economically significant geographies has undoubtedly moderated perceived financial risk. Back when recessions were forecasted and priced in as the base case to follow the interest rate hiking cycle, there was greater financial risk within the system. Despite a more sanguine […]
US Interest Rates Nothing much new over the weekend other than while sifting thought the tea leaves from last week, we found that not one but two members of the FOMC, the rate setting and policy making committee of the Federal Reserve, advocated US interest rates staying higher for longer to crush inflation. Within their […]
British Pound With GBP back to where it started the year pretty much, there are some stories starting to appear along the lines that while that may be the case, GBP is still up 18% from a year ago following the Truss/Kwarteng mini Budget fall out. That comparison while of course true is not a […]