- Traders in wait and see mode after the Fed sets a high bar;
- UK in focus this week with BOE, jobs data and most importantly, the Brexit bill amendments being debated in parliament;
- Oil continues slide as US oil rigs climb and doubts rise over necessary output deal extension.
- It’s been a relatively calm start to a week that is likely to be anything but, with European markets broadly mixed and US futures pointing to a flat open.
Traders appear to be in wait and see mode at the start of the week, with attention firmly on the central bank meetings this week, most notably the Federal Reserve on Wednesday when we’ll find out if policy makers successfully guided market expectations in the right direction or went too far. The clearly coordinated effort to convince investors that a rate hike is firmly on the table on Wednesday, from a position in which it appeared out the question, has almost worked too well with markets now almost fully pricing one in. The risk is that the Fed now struggles to live up to expectations and should it for whatever reason delay raising interest rates, it may have unintentionally dramatically misguided investors which could result in significant volatility come Wednesday.
The UK will also be in focus this week but it may not necessarily be the Bank of England monetary policy decision or the jobs data that grabs our attention. With Theresa May’s end of March article 50 deadline fast approaching, parliament is set to debate two amendments to the bill added by the House of Lords that would guarantee the rights of EU nationals in the UK and give parliament a vote on the final Brexit deal. The vote is particularly important for investors as it would theoretically reduce the possibility of a hard Brexit, the only downside being that in turn it may weaken May’s negotiating position.
Should these amendments be approved by parliament today though, it would allow May to trigger article 50 and begin the divorce proceedings as early as tomorrow. There appears to be more appetite than May and some of her colleagues would like for a vote on the deal to be included in the bill, which is helping to support sterling this morning. The pound has come under pressure again as of late, with a number of economic releases appearing to show the economic cracks starting to appear following what has been a much smoother ride since the vote than many anticipated. Should the amendments be approved, it could offer more upside for the pound, with 1.2350-1.24 providing the next test to the upside against the dollar.
Oil remains in focus this morning, once again trading lower after Baker Hughes reported on Friday that the number of oil rigs in the US rose by eight to 617, the highest there’s been since September 2015. The deal between OPEC and non-OPEC producers appears to be having little effect on the glut at the moment, with three of the last four weeks showing substantial inventory increases. Of course, these changes take time to have an impact and non-OPEC compliance is still a little low but with an extension to the deal in doubt, prices are reverting back towards pre-deal levels, although I doubt we’ll get close to the lows any time soon.
