Sterling softer as Brexit vote approaches
Sterling has softened against the euro, to just shy of 90p, ahead of tomorrow’s vote in the UK parliament on Theresa May’s Brexit deal with the EU. That’s if the vote goes ahead as planned – there’s still talk it might be postponed. If it does go ahead parliament seems likely to vote down the deal, so whether May survives to take things forward could depend on the scale of her defeat. In any case, heightened uncertainty seems set to be the order of the day, with sterling likely to be volatile, and probably for a period of time as well
Bond yields in the US fell quite sharply last week – by around 15bps to 2.85% in the case of 10-year yields – amid equity market weakness and as the market pared back expectations for Fed rate hikes next year. US yield differentials over equivalent European bonds narrowed over the week, and the dollar lost some ground as a result with EUR trading at over $1.14 this morning
Employment in the US rose by 155,000 in November according to Friday’s jobs report, less than the 198k increase the consensus expected, while the unemployment rate and annual earnings growth came in at 3.7% and 3.1% respectively, the same as in October
Fed Governor Brainard says the policy of gradually raising interest rates “has served us well by giving us time to assess the effects of policy as we have proceeded”, adding that this “approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves”
The ECB meets this Thursday against the backdrop of softer than expected Euro area growth recently and with the recent fall in oil prices likely to put downward pressure on headline inflation. It is still set to end QE this month though, so its guidance on the future path of interest rates will be the focus for the market
It is busy on the data front this week with GDP and the labour market report in the UK today and tomorrow respectively, and CPI (Wednesday), retail sales and industrial production (both Friday) in the US. At home, third quarter GDP is published on Thursday