Morning Commentary: Markets’ Season of Discontent

Foreign Exchange - Morning Commentary

Markets’ Season of Discontent

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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
The British pound is the primary loser in an otherwise tepid FX market this morning.  Sterling is down about 0.7% and trading just under the key 1.30 figure in the interbank market on….guess what….yeah….Brexit worries, yet again.  Maybe more specifically, it can be classified as leadership worries, as Prime Minister Theresa May is due today to update parliament on Brexit talks as rumors are starting to get louder about a potential challenge to her leadership.  This comes in the shadow of some decent progress with the European Union seeming to relent on a strict time table as the sticky issue of Ireland still churns.  PM May has said that 95% of the deal is settled, but the details are losing support.  As one currency strategist put it, "May has actually managed to unify the Conservative Party; unfortunately it's in opposition to her plans."
The euro is slightly lower today as well, just under its own key interbank level of 1.15, as the Italian budget drama continues.  Moody's downgraded the country's debt on Friday but by less than what the market expected.  Fears were in place for the downgrade to be to "junk" level.  Instead, it was downgraded to its lowest investment grade level – i.e. one step above junk.
Global equities started off with a bang in Asia, with China's Shanghai Composite index up over 4% on news that the Chinese government would offer "unwavering" support for the country's private sector.  This obviously comes on the heels of its recently reported growth slowing to 6.5%.
Finally, this will be a busy week in many ways, but keep an eye on U.S. corporate earnings, which are heavy this week.  The types of companies reporting turn from financial firms to manufacturing and consumer goods companies.  This will give us a much clearer picture of how such companies are faring from trade and currency impacts.
  • The weekend's news that the President Trump is preparing to withdraw from the Intermediate-Range Nuclear Forces Treaty with Russia drew little market reaction, with some suggestions making the rounds that behind this is a plan to enable the U.S. to counter China's arms buildup in Asia.  There has been plenty of nervous talk of a Trade War turning into a new Cold War with China.
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