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The Day So Far

Focus turns back to the House of Lords today with the upper chamber restarting its debate over the government’s Brexit bill. So far the hearing that took place last week provided little resistance and this weeks hearing marks the final step towards fulfilling the governments objective to trigger Article 50 by the end of March. The only problem now is amendments with reports over the weekend that a growing number of Conservative rebels are preparing to join opposition lawmakers from Labour and the Liberal Democrats in forcing the decision to come back to the House of Commons to vote again to undo any changes. This, in combination with some hints in weekend press in regards to Scotland potentially calling for another vote of independence, has prompted Cable to move lower overnight and gravitate around the S1 level intraday. This is in contrast to the performance of the EUR, where in the game of politics a week is a lifetime, and despite the uncertainties we were discussing here this time last week the backing of Macron from socialist member Caresche at the weekend, which follows the alliance with Bayrou last week, has seen the independent candidate climb up to 24% for the first round in the latest OpinionWay poll, with the gap widening to 62% to 38% against the National Front’s Le Pen in the second round.

When accessing what the main driver maybe for the financial markets maybe this week one need look no further than the US President’s State of Union address on Tuesday evening. Historically the event has been used by the government to showcase its policies and timelines for the coming year, and in the context of equities markets trading at arguably overvalued levels, then it will be interesting to see if Trump can deliver on the promises that have been such an underlying factor in the impressive run that has resulted in continuous all-time highs. The other asset, in addition to stocks, that has seen a solid rally in recent weeks is gold which has risen for four consecutive weeks, as such the recent movement across assets means that I would be looking for the joint session of Congress to provide the catalyst for the weeks main volatility. An interesting stat from this morning is that only one (Jefferies) of the 23 primary dealers is looking for the Federal Reserve to hike as soon as March with the consensus leaning towards a June move.

The Day Ahead

One consideration for today is that when putting the week into context Monday is potentially the quietest day from a schedule point of view and irrespective of Trump we also have a lot of economic data on the docket. As such unless a clearly defined opportunity arises then it maybe beneficial to remain conservative for better opportunities that may present themselves from tomorrow onward. With this in mind we are sticking with the trend in equities and T-notes in still looking for the long, with the same directional bias in WTI crude. The sole short is in EUR/USD where although the French polls are favouring EUR strength the short at Friday’s high looks suitable to play the range.