Brexit UK Referendum

Growth Worries Hit Early, with the GBP and Brexit Still in the Spotlight

Earlier in the Day:

There were no material stats released through the Asian session this morning to provide the markets with direction and, with the U.S markets having been closed on Monday, recent economic data out of the region and direction from the U.S futures influenced early on.

At the time of writing, the Japanese Yen was up 0.23% to ¥109.42 against the U.S Dollar, the gains driven by risk sentiment, as the Asian equity majors follow the U.S futures into the red through the early part of the day.

The Aussie Dollar saw bigger losses early on, down 0.34% to $0.7135 while the Kiwi Dollar was down by just 0.12% to $0.6724.

Following softer growth figures out of China on Monday and out of South Korea this morning, sentiment towards the economic outlook continues to plague the markets. On one side, an end to the trade war would support a pickup in economic activity, with a shift in central bank policy outlooks to the more dovish side also a positive. On the flip side, the slowdown in growth has not been immediate and has been evident for a number of quarters, which suggests that it hasn’t just been down to the U.S – China trade war.

In the equity markets, it was red for the majors, with the Hang Seng leading the way down, with a loss of 1% at the time of writing. The CSI300 and ASX200 were not far behind, with losses of 0.87% and 0.65%, with the Nikkei was down by 0.54%.

The Day Ahead:

For the EUR, following a quiet start to the week, on the data front, economic data scheduled for release this morning includes January economic sentiment figures out of Germany and the Eurozone.

Softer than forecasted numbers will likely weigh on the EUR, with the IMF and the Bank of Italy cutting growth forecasts at the start of the week.

On Monday, the IMF cut its global growth forecasts for this year and next, with 2019 growth cut by 0.2% to 3.5% for 2019 and by 0.1% to 3.6% for 2020, the cuts coming off the back of growth forecast cuts that had been made back in October.

While the U.S – China trade war was one of the key contributing factors to the downward revision, weakness in the German auto sector was also highlighted, as was weaker domestic demand in Italy.

At the time of writing, the EUR was up 0.04% to $1.1369, with today’s stats, updates on Brexit and chatter from the Oval Office to provide direction.

For the Pound, economic data scheduled for release this morning includes November wage growth and unemployment rate numbers along with December’s claimant count. We will expect wage growth and claimant count numbers to have the greatest influence on the data front.

Outside of the stats, Brexit continue to be the Pound’s ball and chain, with many likely to have hoped for a clear Brexit blueprint by now.

Monday’s Plan B, which was unsurprisingly similar to plan A, when considering the 3 days given to British PM to run back to Brussels, left Theresa May with little wiggle room. The EU is unwilling to renegotiate and Parliament is unwilling to agree to plan A, unlikely to agree to Plan B and most likely would vote against a Plan C, unless it involves a delay to Brexit and a 2nd referendum.

At the time of writing, the ever resilient Pound was down 0.09% to $1.2881, with today’s stats and updates on Brexit the key drivers through the day.

Across the Pond, economic data scheduled for release is on the lighter side, limited to December existing home sales.

While we can expect the Dollar to respond to the numbers, which are forecasted to be Dollar negative, focus will likely remain on Capitol Hill and the ongoing U.S government shutdown, together with any further updates on the U.S – China trade war.

At the time of writing, the Dollar Spot Index was up 0.5% to 96.38.

For the Loonie, economic data scheduled for release out of Canada includes November wholesale sales and manufacturing sales figures. A lack of stats at the start to the week could see the Loonie more sensitive to today’s figures, though direction will ultimately continue to come from sentiment towards growth and the direction of crude oil prices through the day.

The Loonie was down 0.15% to C$1.3314 against the U.S Dollar at the time of writing.