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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 13 March 2017 at 7:59 GMT

Morning Markets: Article 50 headlines prompt GBP buying surge

Head of Editorial Content / Saxo Bank
Denmark

Morning Markets


Watchlist

  • Italy: Industrial Production (0900 GMT)
  • US: Labor Market Conditions Index (1400 GMT)

The British pound is surging into Monday's European open on news that UK prime minister Theresa May is set to invoke Article 50 this week, setting the Brexit decision in motion. Given that the Brexit vote saw the pound crater from over 1.50 versus the USD to near the 1.20 level (excluding the "flash crash" that saw it briefly spike as low as 1.10 in October 2016), today's movement seems to reflect a desire for certainty on the part of traders.

Recent data prints out of London have also appeared to reflect a resilience on the part of the UK economy that not all analysts expected as we head into the Brexit process. 

Also up this week is the Federal Open Market Committee Wednesday, where a 25 basis point interest rate hike is all but entirely priced into the USD, US equities, and other assets. 

Monday's Asian session saw bourses broadly green, although energy shares were hit hard by the drop in WTI crude prices that began in earnest following last week's US inventory data. The energy-sector weakness hit Australia's S&P/ASX 200 particularly hard, where shares like Santos Limited (minus 2.1%) and Oil Search (minus 2.7%) pulled the index 0.4% lower on the day. 

On the data front, today sees Italian industrial production data expected to show a recovery, while Tuesday sees European CPI data as well as the latest ZEW economic sentiment figures; Chinese industrial output is also due during Tuesday's Asian session, with analysts calling for a 6.1% (year-over-year) expansion. 

Finally, this week also sees US president Donald Trump meeting with German chancellor Angela Merkel in what is likely to be a contentious summit as the two leaders represent the two divergent poles of economic nationalist and pro-globalisation sentiment. 

Market signals

Asian session

  • Asian markets – apart from the ASX200 – were up ahead of the Fed's rates decision 
  • Japan's Nikkei 225 traded up as the yen continued to slip against the dollar
  • Japan's core machinery orders fell 3.2% in January after rising 6.7% in December
  • NZ food prices rose 2.2% in the year to February, the largest increase since Dec 2011
  • Free trade and the euro will be hot topics when Trump meets Angela Merkel on Tuesday

Forex ahead

  • The Australian dollar edged higher; it was worth 0.7571 at 0755 GMT
  • The Aussie fell to a five-week low of EUR 70.49¢ this morning before recovering 
  • GBPUSD gains over 50 pips from overnight lows, now trading at 1.2222
  • NZDUSD adds 0.30% to its value as it heads for the 0.6950 level
  • EURUSD breaches 1.07 handle into Monday's European open

From the Floor

Euro rate hike.Draghi is speaking today and he could stamp out this rumour,” says Hardy.

Bond boost.We’ve got the Dutch elections, Article 50 could be triggered. With all this volatility this week there’s reason to believe we could see more support for bonds,” says Boye. 

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3
Italy's industrial production numbers for January are set to remain upbeat with output on track to record its sixth positive change, says James Picerno.

Golden recovery
Gold recovered late Friday in response to the US non-farm payrolls report, prompting a drop in the dollar and Treasury yields,
write Sydney's Saxo trading team.

Surprises ahead
The week ahead boils down to a potential upside risk to Fed rate expectations and surprises from the Dutch elections and central bank meetings, says Kay Van-Petersen.

nnn


Brexit, currencies, free trade, refugees, Nato, and Ukraine will be on the agenda when German chancellor Merkel meets US president Trump on Tuesday. Photo: Shutterstock

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