Politics Still Trumps Economics

Le Pen continues to advance

It is an interesting phenomenon that despite the almost total discrediting of opinion polls since Trump and Brexit they are still watched with incredible interest. Actually maybe it is because of the unreliability that interest remains.

In France, Marine le Pen the right wing National Front candidate trails her most likely opponent in the May 7th runoff by more that 20 points and in the past that lead would have been considered unassailable. Nowadays, he is still seen as “in with a chance” given how difficult it is to gauge this nationalist fervour.

There is a small mining town in Northern France that sums this zeal up very well. Until very recently this was a solidly left wing working class community with a strong communist backing. It is now showing a 95% backing for le Pen. The French working class have always been more militant than their British counterparts. They see their simple way of life being eroded by policies they have no control over and Le Pen is massaging their angst.

The triggering of Article 50 of the Lisbon Treaty in which the U.K officially announces its intention to leave the E.U is likely to be announced this week with March 31 still likely to be the effective date. A lot of commentators see this as a risk to the pound, there is still a very bearish feel around for sterling but I see it as neutral at worst and possibly a bullish scenario. If the market can get its head around the fact that this is now happening and there are a number of positives, we may see Sterling recover and the recent lows could be the bottom of this cycle.

The Euro traded in narrow ranges against the major currencies on Friday. EURUSD traded as high as 1.0620 before settling back to close lower on the day at 1.0583. There is strong technical support for the single currency at 1.0480 with interest to sell just above Fridays high.

The pound opened against the dollar at 1.2550 and despite trading up as far as 1.2570 was lower against a stronger dollar to close at 1.2448.

EUR/GBP fell seventy points from its high at 0.8494 before settling a little higher on the day at 0.8478
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Manufacturing Data is the Economic Highlight of the Week

Being the first week of the month, we would normally be looking forward to the joys of the U.S. employment report. However, since February is a short month the report is delayed a week. So, step up manufacturing data. Purchasing managers report in the U.K., U.S., and Eurozone. A number below 50 signals contraction in manufacturing and a number above signals expansion. Each of these economies has been in positive territory for quite a while with readings around 55 but the interest this month will be in the U.K., given the huge rise in input prices seen this month. There is a real possibility of a large fall in the U.K data but it is doubtful that it will have fallen into contraction (yet).

FOMC minutes fallout continues

The credibility of the FOMC which was sacrosanct until the start of the Financial Crisis is under major threat given the conflicting and “wishy washy” comments we have been seeing recently. The minutes of the latest meeting compound their crimes. In saying that a hike depends upon incoming data is almost an abrogation of responsibility. Markets are not keen on “advance guidance” for this very reason.

Against its index the dollar was virtually unchanged on Friday, closing at 101.10 despite an early fall to 100.65

This week’s events of note

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Monday

• U.S. Durable Goods Orders – A notoriously difficult number to predict since in related to “big Ticket” Items like planes and tankers.

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Tuesday

• U.S. Trump Speaks to Congress – Lots of promises but will now be the time he finally confirms policies?
• U.S. Q4 GDP – 2% expected. Any deviation will drive interest rate discussion.

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Wednesday

• Australia Q4 GDP – Following RBA Gov’s speech expect strong number. (2%?)
• E.U. Manufacturing data – Expansion set to continue but from (very) low base.
• U.K Manufacturing data – See how input price rises are affecting manufacturing.
• U.S. Manufacturing data – Slight fall from last month but still strong

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Thursday

• Japan Inflation – Is there any yet? Ultra-easy monetary policy to continue

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Friday

• U.S. Employment Data – Delayed for a week. Released on 10/3
• U.S. Yellen speaks – Clinging to office but look for stance on interest rates.

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