Johnson’s affirms no extension
09th January: Highlights
- Johnson’s December deadline “basically impossible”
- Trump and Dollar unmoved by Tehran retaliation
- Sentiment “improves” as economy remains in doldrums
The proof is in von der Leyen’s pudding
In a similar manner to his reaction statements that Brexit couldn’t be agreed before Christmas, Johnson simply ignored the negativity and reaffirmed his “oven ready” trade deal is “ready to go”. Such a suspension of reality is unlikely to calm investors who deal in hard facts and although there are several reasons for Brussels to drag its feet over the negotiations, it is the simple practicality of the amount of work still to be done that has raised fears of a hard Brexit.
In what feels like a moment of deja vu, the terms hard or no deal Brexit have returned although this time, the UK has a far stronger negotiating position as Johnson has his 80-seat majority behind him and can back tough words with tough deeds.
For now, the markets proven concerns over the UK sticking to its position that it will finally leave the EU on 31st December “come what may” and no further extension will be requested, remain in the background and the pound is reasonably well supported, primarily by strong data on house prices released yesterday.
House prices unexpectedly leapt in December rising by 1.5% MoM leading to a 4% rise from a year earlier. The December increase was against a backdrop of market expectations of a 0.2% drop.
This enabled the pound to rise to a high of 1.3170, although it drifted lower as the dollar continued to benefit from global risk concerns, closing at 1.3098.
Calls for diplomacy amid Iranian retaliation
One week he is saying he “wants to bring U.S. troops home from the region” while virtually the next, he is sending 3.5k more soldiers to Iraq.
Khamenei on the other hand is Supreme Leader of a highly volatile state. Just witnessing the scenes at the funeral of Gen Soleimani show just how much pressure there will be for further, more significant, retaliation almost no matter the cost to the “man on the Street”.
Just how much faith can be placed in Trump’s comment that Iran appears to be “standing down” remains to be seen. Trump is no stranger to adding two and two and making five. His show of military strength and the American ability to strike where and when it wants may impress its allies, but Moscow and Beijing will be less excited.
The raised tensions have led the dollar higher, but traders’ eyes will now turn towards domestic matters. Tomorrow sees the release of the December employment report.
Following on from a dismal October headline and a stellar response in November the market is cautious over just where the last one of 2019 will sit. While the Fed remains stoic in its comments that it does not look at individual releases (just as well given the two latest NFP headlines) discerning a trend is virtually impossible.
Were there to be another 250k+ number tomorrow, the addition of half a million plus new jobs in two months would almost certainly remove any thoughts of any further rate cuts. The average expectation currently stands at +164k with traders likely to “accept” anything above +150k provided there it not a significant downwards revision to Novembers data.
Yesterday, the dollar index continued to move higher. It reached a high of 97.35, closing within one pip of that level.
When does sentiment become wishful thinking?
With industrial confidence and business climate worsening (both marginally) and consumer confidence unchanged only services and economic sentiment improved. If this is considered positive data for the region, it serves to show just how bad things have got in the Eurozone.
German industrial production data will be released later this morning and that will serve as a proxy for the performance of the entire region.
With an ECB policy meeting looming on Jan 23rd, the pressure for some affirmative action from Christine Lagarde and her colleagues is mounting although with the growing number of issues affecting the global economy, it is hard to see any form of recovery even being talked about in the first half of the year.
Yesterday, the euro remained in the thrall of the dollar falling to a low of 1.1107 and closing at 1.1112.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”