Pound Slips as Brexit Talks Resume; Dollar Waits for PCE Inflation

Here are the latest developments in global markets:

FOREX: The dollar consolidated gains earned early in the day on the back of rising US bond yields which jumped to peaks last seen in 2014. The dollar index was trading at 89.60 (+0.22%) and dollar/yen was steady at 108.70 (+0.05%). Euro/dollar eased to 1.2397 (-0.19%) as German bonds yields continued to rise for the fourth day reaching two-year highs after the Dutch central bank said on Sunday that the ECB should be clear on its plans to end the asset purchase program in September. Pound/dollar was the worst performer, correcting lower to 1.4070 (-0.70%) in the first day of the new Brexit phase where EU foreign ministers will discuss terms regarding transition period. Although the EU leaders showed their thumbs to move Brexit talks to the next stage, some believe that the UK is not ready to complete the divorce.

STOCKS: European stocks were in the red except the British FTSE 100. The pan-European STOXX 600 was down by 0.23% at 1100 GMT unable to gain from upbeat AMS earnings results. The Austrian chipmaker AMS saw its shares surging by 17.60% after its revenues doubled in 2017 and its iPhone component supplier upgraded its growth forecasts more than expected. The blue-chip Euro STOXX 50 retreated by 0.30% weighed by losses in healthcare and consumer cyclicals. The German DAX 30 lost 0.19%, the Spanish IBEX 35 decreased by 0.32% and the French CAC 40 edged down by 0.04%. On the other hand, the UK’s FTSE 100 increased by 0.20%.

COMMODITIES: Oil prices were on the backfoot as the US oil production seemed to offset OPEC-led supply cuts. WTI crude was last down by 0.50% on the day at $65.80 per barrel and Brent was weaker by 0.88% at $69.90. Gold moved up by 0.20% to $1346.40 per ounce.

Day ahead: US PCE inflation eyed; Japanese employment data due in Asian session

The dollar will remain in the spotlight during the European afternoon on Monday as inflation data and figures on consumption out of the US are expected to bring fresh volatility to the currency.

The core PCE index which excludes volatile items – the Fed’s most preferred inflation measure – is expected to remain steady at 1.5% y/y in December at 1330 GMT, finishing 2017 below the Fed’s target of 2.0%, while on a monthly basis, the gauge is anticipated to inch up from 0.1% to 0.2%. However, personal consumption and personal spending figures released at the same time might gather greater attention as any surprise to the upside would signal higher inflationary pressures for 2018. According to forecasts, personal income is said to grow at November’s pace of 0.3% m/m, whereas personal spending is projected to slow down to 0.4% m/m from 0.6% seen in the previous month.

Later in the day, the Asian session will see the release of the Japanese household spending and employment data at 2330 GMT. While the employment stats are forecasted not to deviate much from previous prints in December, with the unemployment rate standing flat at a multi-decade low of 2.7% and the jobs to application ratio edging up to a fresh 44-year high of 1.57, household spending is seen declining on a monthly basis. Particularly the gauge might have fallen by 0.6% m/m after it surged by 2.1% in November, posting the biggest expansion since March. On an annual basis, the measure is expected to ease to 1.6%.

A few minutes later, December’s Japanese retail sales might come softer at 1.8% m/m at 2350 GMT.

Beyond the above releases, the economic calendar is relatively light today with New Zealand’s trade data for December gaining some interest. Those are scheduled for release at 2145 GMT.

Brexit developments will also be in focus as negotiations on transition period resume today, while discussions on other issues including trade will be in preparation.

In equity markets, corporate earnings releases will continue to keep investors busy.