The British pound has posted small gains in the Tuesday session. In the North American session, GBP/USD is trading at 1.4070, up 0.20% on the day. On the release front, British Manufacturing PMI ticked lower to 55.1, beating the estimate of 54.8 points. Later in the day, the UK releases BRC Shop Price Index. In the US, there are no major events. IBD/TIPP Economic Optimism dropped to 52.6, well below the estimate of 55.2 points. This marked a 4-month low. On Wednesday, the UK releases Construction PMI and the US publishes ADP non-farm payrolls and the ISM Non-Manufacturing PMI.
The Brexit negotiations have been bumpy and often acrimonious, but last month there was some positive news in March, with the announcement of a transition period. This phase will take effect at the end of March 2019, when Britain leaves the European Union and will run until December 2020. It is meant to serve as a “cushion” to allow businesses to adjust to Britain’s departure. Broadly speaking, EU rules will still apply to the UK, but Britain will no longer have a seat at the table with regards to EU decision-making. However, according to a report in the Times newspaper on Tuesday, EU regulators have warned UK banks operating on the Continent not to rely on the transition deal, and to prepare for a “hard Brexit”, in which the UK would simply depart the EU without any agreement. This position is in stark contrast to that of the Bank of England, which has embraced the transition agreement. The status of financial services in the post-Brexit era remains a key sticking point between the sides, and the stakes are very high, as Paris and Frankfurt are hoping to lure thousands of financial jobs away from the City of London.
Investors continue to monitor the tariff battle between China and the US. The week started with China retaliating and imposing its own duties on a range of US goods, including frozen pork and wines. For its part, the US is expected to list which Chinese product will be subject to US tariffs. With the two economic giants showing no signs of backing down, there are growing fears that a new global trade war could be underway. If the tit-for-tat measures continue, both the US and Chinese economies could suffer, which could lead to a global recession.
