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Daily Brief

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Beware the tides of March

Boot, can, road

Optimism that parliament will save Britain from an economically prejudicial no-deal Brexit, and postpone Article 50, has given way to a new concern: What happens then? If the current uncertainty is negative for the economy and the pound, how would an extension of it improve matters?

With 18 days to go before Britain is supposed to leave the EU, uncertainty still reigns unchallenged. The votes this week will not be the end. To paraphrase Churchill, they will not be the beginning of the end and nor, unfortunately, will they even be the end of the beginning. They will simply mark another conjunction of boot, can and tarmac. 

That realisation weighed on sterling at the end of the week. The pound lost an average of 1.2% on the day, falling against every other major currency.  It conceded a cent and a third each to the euro and the franc and gave up more than one US cent. Reports over the weekend, that the prime minister is under pressure to resign, ensured that sterling began this morning on the back foot too.

Watchful waiting

Federal Reserve governor Lael Brainard diverged from the chairman's party line in a speech on Thursday. Rather than employing the "patience" espoused by Jerome Powell, Ms Brainard will do some "watchful waiting". The technique is winning support in many central banks.

It was evident on Thursday that the European Central Bank is employing a similar approach. Low interest rates are no longer expected to persist "at least through the summer"; they will now "remain at their present levels at least through the end of 2019". The ECB also announced a new round of targeted longer-term refinancing operations (TLTRO-III) to "preserve favourable bank lending conditions and the smooth transmission of monetary policy". The euro reacted negatively to the news.

On Friday the US dollar reacted negatively to the news that nonfarm payrolls increased by only 20k in February, instead of the forecast 180k. It was not too badly hurt though, because unemployment fell to 3.8% and wages growth accelerated to an annual pace of 3.4%.

US retail sales

Governor Brainard will doubtless be waiting as watchfully as everyone else for January's US retail sales figures after lunch. The likelihood is that they will follow the pattern established elsewhere in G10, reassuring investors that the consumer is still alive and well in the States.

In most countries sales bulged in November as a result of online promotions, fell in December because Santa's orders had already been filled, and rebounded with the January sales. Expectations are not high today; analysts are looking for a headline increase of 0.1% with the control group up by 0.6%.

German data this morning showed industrial production falling by an annual 3.3% and a narrowing of the trade surplus as exports stalled and imports continued to rise. Spanish retail sales went up by 0.8% in January. There are no other significant economic data until Australian mortgage lending and business confidence come out tonight.

GBP Brexit decision optimism fades, sterling falls

GBP Brexit decision optimism fades, sterling falls

EUR Deflated by ECB liquidity stimulus plan

EUR Deflated by ECB liquidity stimulus plan

USD Weak jobs growth offset by higher wages

USD Weak jobs growth offset by higher wages

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