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Reading between the lines

Forget what happened on Friday

Having had her Brexit plan comprehensively trashed by MPs last week the prime minister has spent the last week putting it back together. Some bits were too broken to reuse but the Plan B she presented to Parliament yesterday was a pretty good facsimile of Plan A.

That being the case, and given the number of rulings-out pledged and refused in Theresa May's testimony, this latest proposal would appear to be heading for the same ignominious defeat that met the original scheme. Yet, despite the obvious hurdles, sterling is the joint overnight leader among the major currencies.

Investors believe the situation has changed fundamentally in the last six days. It is now clear that MPs intend to table motions to prevent a no-deal Brexit, extend Article 50, rescind Article 50, call for a referendum and invoke whatever other anti-disaster wheezes they can dream up in coming days.  They will not all be successful but investors expect at least one of them to prevail, especially as opposition leader Jeremy Corbyn has at last emerged from the closet to lend his support. Labour MP Yvette Cooper, co-author of one of the stratagems, claims that the government "privately want [the prevention of a no-deal outcome] to happen, and are relying on parliament to take action".

Higher risks

The International Monetary Fund has lowered its predictions for global gross domestic product. "The downward revisions are modest; however, we [at the IMF] believe the risks to more significant downward corrections are rising."

The US president thinks that "trade wars are good and easy to win". The IMF disagrees, arguing that financial markets and trade tensions "have become intertwined" and "the risks are rising". The slowdown in China, exacerbated by Trump's trade war, has implications for the global economy, including America.

IMF chief Christine Lagarde spoke of "significantly higher risks" in opening remarks to the World Economic Forum in Davos. Her words, and the non-resolution of the US government shutdown, and Brexit, and gilets jaunes, and general unease, contributed to a mood of risk-off among investors. 

Housekeeping

There will be some non-Brexit relief - light or otherwise - for sterling this morning when the UK jobs and wages data come out. There is not much else of consequence until New Zealand publishes the quarterly inflation data tonight.

Unemployment in Britain is expected to be unchanged at 4.1% with 20k more jobseekers. Annual earnings growth is forecast to be steady at 3.3% a year, keeping ahead of inflation which was last seen at 2.1%. Public sector borrowing should have been sharply lower in December as a result of seasonal factors.  

The only European data are ZEW's measures of German and Euroland investor sentiment. North American ecostats this afternoon relate to Canadian wholesale sales and manufacturing shipments and US existing home sales. The NZ CPI figures should put inflation at 1.8% for the fourth quarter of 2018. There would be astonishment if the Bank of Japan were to alter its benchmark interest rate.

GBP shares the lead as Plan B comes under fire

GBP shares the lead as Plan B comes under fire

USD alongside sterling and yen

USD alongside sterling and yen

JPY unlikely to be affected by BoJ rate shift

JPY unlikely to be affected by BoJ rate shift

NZD awaits Q4 inflation figures

NZD awaits Q4 inflation figures

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