Blustery in places

One foot on the ground

Another day, another Brexit speech. That was the exhausting pattern last week anyway. Prime Minister Theresa May wound things up on Friday when she set out, for a third time, what Britain is hoping for in a trade deal with the European Union. Sterling emerged from it pretty much unscathed.

For the first time, Mrs May steered away from talk of unicorns and sunlit uplands. She acknowledged that trade with the EU will become more difficult, the ECJ will continue to have a say on certain matters and some freedom of movement will persist. Rather than scaring away investors, her more realistic tone encouraged them to believe that the prime minister now has at least one foot on the ground.

Sterling was on average unchanged on the day. It was flat against the US and Australian dollars, a cent or more higher against the Canadian and NZ dollars and a third of a cent lower against the euro and the Swiss franc.

Trade wars are good

As Mrs May attempted to pull her party together, the US president was boasting on Twitter about the size of his tariffs and Europe was exercised by the politics of coalition. Trade wars are apparently easy to win: German coalitions are less so, but still eventually doable. In Italy things are a bit trickier.

Donald Trump's imposition of import taxes on steel and aluminium was met by threats of retaliation by the EU and Canada. Off the cuff, Brussels spoke of tariffs on motorbikes from Milwaukee and fried chickens from Kentucky. Investors are unsure whether a trade war would be worse for the commodity currencies or the US dollar itself, so they leaned on them all.

The euro was helped by news that Germany's Angela Merkel has, after five months, secured a coalition deal. It was hurt this morning by the lack of a clear-cut Italian election result but that reaction ought to pass swiftly: politics in Italy has been chaotic for half a century so there can be no real shock at the current situation.

Back to work

Investors will have the opportunity today to focus once again on the economy. There is a long list of services sector purchasing managers' index readings and Euroland reports on retail sales for January. Tonight the Reserve Bank of Australia is all but certain to leave interest rates unchanged.

Services PMIs released already showed a slight softening in Australia, Japan and China. That deterioration is expected to be replicated in Euroland and the States but analysts reckon the UK measure will come in a couple of ticks higher on the month. Euro zone retail sales are forecast to have risen by 0.3% after slumping 1.1% in December.

It is probably too much to expect the market to get through the day without being troubled by Brexit, and almost impossible to imagine that Donald Trump will calm down about his trade war. But hope springs eternal.