UK takes a breath after Supreme Court Article 50 Ruling

Last week began on a nervous footing – as expected, Sterling slipped yet lower in advance of the UK Prime Minister, Theresa May’s Brexit speech, falling to its lowest level for three months. As the UK Prime Minister made her address, stating intentions within the country’s Brexit plans to boost the UK’s global trade relationships and confirming a complete split with the EU, the Pound strengthened, prompted by confidence returning to the markets. The Pound strengthened against the Euro by one cent and against the US Dollar by two cents even as the Prime Minister spoke.  
 
At the start of this week, markets were watching and waiting intently for the ruling of the UK Supreme Court on whether Mrs May can legally instigate Article 50 of the Lisbon Treaty without specific parliamentary permission. Today, the Supreme Court ruled that the Prime Minister cannot trigger Article 50 without a Parliamentary vote - this provided an answer to some of the lingering uncertainty and, as a result, Sterling enjoyed a boost against all of its key currency pairings. The Supreme Court also noted that the devolved parliaments did not need to vote on the decision. Once again, markets are waiting to see what will happen next…

David Davis, addressing the House of Commons this afternoon, insists that the Article 50 Bill will be straightforward and there will be no changes to the current Article 50 timetable. He added that the Government will move swiftly to enact “the people’s decision”. Once again, markets wait to see what will happen next…
 
Also in the UK, Retail Sales experienced a surprise drop last month, in a sign that rising prices since the referendum vote are beginning to deter the UK consumer. Sales fell by 1.9%, which was the largest decline since April 2012, and much worse than the anticipated 0.15 dip. This is, of course, only a single month of data, so one should be wary against reading too much into it and there was a lot of November discounting, which may have impacted the December numbers. However, it is clear that rising import costs are now being passed on to shoppers.

US Dollar weakens following Inauguration and events in US

In the US this week, the Dollar strengthened slightly in advance of Donald Trump’s Inauguration as US President. The eagerly anticipated US Federal Reserve Beige Book Economic Report showed modest growth in the US economy in the last months of 2016. Federal Reserve Chair, Janet Yellen, spoke about gradual increases in interest rates and the importance of a careful balance needed between inflation and financial stability in order to ward off another recession. There was not much market movement initially in response to Trump’s Inauguration, although by Monday, the USD had weakened against all its major currency partners. Mr Trump has already hinted at a renegotiation of the North American Free Trade Agreement (NAFTA) agreement and has withdrawn from the Trans-Pacific Partnership (TPP) which impacts 11 other nations. What is interesting is that China has hinted it may take America’s place in the pact which will proceed anyway. Time will tell if this protectionist stance by the new President will continue.

Canada retains interest rates and publishes inflation data

Near neighbour, Canada, kept their policy and interest rates the same at 0.50 percent, although Stephen Poloz, Bank of Canada Governor, said that "a rate cut remains on the table". The European Central Bank (ECB), in contrast, announced their plans to extend Quantitative Easing measures throughout Europe until December 2017, albeit at a slower rate of 60 Billion Euros each month.
 
Canada's inflation rate rose in December at a slower than anticipated pace, as higher energy costs were offset by declines in food prices. CPI rose 1.5% against an expectation of 1.7%. Core inflation was slightly higher, although the impact on the report is likely to be limited as the Bank of Canada is expected to leave rates steady until 2018. Any change to the North American Free Trade Agreement (NAFTA) will impact Canada, as will the completion of the TPP, in which Canada is a participant. 

Australia and New Zealand Dollars doing fine

The Australian Dollar hit a bump in the road for the first time in a while, as housing loan data showed higher levels than expected and still failed to help the AUD against the potential global economic implications of the UK leaving the EU. However, a rise in Australian Employment figures and positive New Zealand business data spelled good news for antipodean currencies.
 
Both Australia and New Zealand are intending to plough on with the TPP without American involvement and it may well strengthen ties with China if the Chinese carry out their mooted intention to join in with the trade pact. Short term, the retraction of America’s support for the pact has weakened the Aussie and Kiwi Dollars but that could well change as the deal is finalised. 

Positive growth data for China – good news for global economy?

Gross Domestic Product (GDP) growth data from China was positive, which is a good way of testing the sentiment and strength of the global economy. There is always a debate about how accurate or reliable Chinese data is, but the trend is a positive one and that bodes well for global trade.