Week Ahead: Major markets look to recover after a week of shocks

Market Analysis /
10 Mar 2019

Sterling to focus on a week of pivotal Brexit votes.

There is no doubt that the main event for Sterling in the coming week is the meaningful vote on Brexit on Tuesday. This, of course, is not the first time we’ve heard that in the last few months and probably won’t be the last time.

With no further concessions on the Irish backstop likely from the EU, and talks being described as being close to breaking down, Theresa May is now unlikely to present the changes required to win and the most probable scenario is that Parliament then moves to vote on whether or not to exit the union without a deal, on Wednesday.

Assuming it does not vote for this outcome - parliamentary arithmetic suggests this is highly unlikely - the next most probable outcome is that Parliament votes on Thursday to decide to request a delay of Article 50 and the whole Brexit process from the EU.

That there will be a delay is currently the consensus expectation. How this will affect Sterling pairs is any ones guess. Over the last few months anything that points to either a delay, or Brexit not happening at all has led to upside in the pound.

Euro – Market looks to decipher ECB.

Despite the European Central Bank's negative assessment of the economic outlook last week, talk of green shoots appears to be raising hopes of a recovery in the Euro-area, and for evidence of this, analysts will be watching industrial production figures more closely than otherwise.

Industrial production in January, therefore, is a key release, which is forecast to show a 1.0% rise from -0.9% previously, when it is published on Thursday morning. A beat on expectations could prove positive for the single-currency in the near-term and give a strong sense of relief after last weeks damning assessment.

USD – Stocks ready to recover from payroll shock

Inflation data is going to be a key influence on the US Dollar this week with data for February out on Tuesday afternoon. Headline inflation is forecast to stay unchanged at 1.6% year-on-year with core CPI also projected to hold steady at 2.2%. Higher-than-expected CPI or Core CPI could drive up the Dollar and vice versa for lower.

The producer price index (PPI) out on Wednesday at, meanwhile, is expected to stress the absence of inflationary pressures which could weaken the Dollar. PPI for final demand is forecast to fall to 1.9% from 2.0% in January. Also out on Wednesday are durable goods orders for January.

Another key release for the Dollar is retail sales on Monday. This came out sharply lower in December after US Consumers tightened their belts. Retail sales are forecast to have risen by a modest 0.2% month-on-month in January, however, recovering partially from December’s 1.8% tumble. A worse-than-expected figure would only renew fears of weakening consumer spending which could weigh heavily on the Dollar.

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