Market Watch - Monday 27 Feb 2017

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Today's key data • USD Durable goods orders m/m • NZD Trade balance

GBP
Sterling was quite range bound last week as it waited for any news from the Brexit bill passing through Parliament. However, this week has started with a bang with the pound being sold off quickly, as concerns over another Scottish referendum resurface. There is a growing possibility of a revolt in the Lords over the Brexit bill which could see the Government miss its self-imposed March deadline. On the general Brexit theme it is worth noting for the future that it is being reported that France, Germany and Italy are all in agreement with the EU that if the UK does not agree to pay Euro 60 billion as a "leavers fee" for Brexit, they will not start talks on a new trade agreement between the EU and UK. The EU is also looking to tighten up its equivalence rules which could be a negative for the City. If these approaches are followed up then it will be a major negative for Sterling as it will cause delay in the UK's ability to start its new trade agreements. There isn’t too much data out this week although we do have the important Services PMI released on Friday.

Euro
It is Europe's turn for the spotlight now and last week the market started to price in its concerns over a possible Marine Le Pen (Far right) victory. However, a credible opponent is starting to emerge in the name of Emmanuel Macron who has agreed a tie up with centre right politician Francois Bayrou and this could/should be enough to deny Le Pen. In the meantime, if the media follows its normal use of hyperbole there may well be a deafening roar of impending disaster just before May 7th when the French second round vote takes place. On the Greek front it may well be that the IMF does not take part in any further refinancing but the amount needed may "only" be Euro 40 billion.

This week the market will focus again on European politics although Tuesday does see the release of Eurozone CPI first estimate.

USD
Last week’s main event was the release of FOMC minutes which were not seen as hawkish enough to produce a rate hike in March. Steve Mnuchin the US Treasury Secretary also helped soften the US Dollar after making comments along the lines of "US rates will be lower for longer". The market is now waiting for President Trumps well publicised tax cuts in his address to Congress on Tuesday, If he disappoints the Dollar may well slip further. On the economic data front we have durable goods orders on Monday and preliminary GDP on Tuesday.

ROW
The AUD and NZD had decent weeks last week although they slipped on Friday in the face of general concern over Europe. Australia’s main event will be on Wednesday with Q4 GDP due for release. The CAD on the other hand had a good week, especially on Friday as its latest inflation release was +0.9% m/m. The Bank of Canada meets this week and analysts expect no change to interest rates.

The Yen has two main themes at the moment. Some argue it should be weakening (especially against the US Dollar) with the interest rate differential between Japan and US Widening, whilst others buy Yen as it is the main safe haven currency (alongside the US Dollar) and the World is facing yet more uncertainty. Last week the Safe haven play was the victor and if fears over Europe continue to grow it could strengthen again. Japan's CPI will be keenly inspected on Friday.

 AFEX