The pound etched up this week following the prime minister’s speech stating that said she would seek a “bold and ambitious free-trade agreement” with the EU and hoped to maintain partial membership of the EU customs union, continued tariff-free trade and an “implementation phase” to avoid a Brexit cliff-edge. Markets responded favourably to her generally positive tone and the end of the uncertainty that had surrounded London’s European strategy since the shock vote to leave the EU in June.
May’s plan to end Britain’s full customs union membership to allow it to set its own tariffs and strike its own trade deals will inevitably lead to border checks and new bureaucracy for exporters between the UK and EU. She also confirmed that she would be prepared to walk away from Brexit negotiations if the UK was being given a punitive deal.
She made it clear that UK was leaving EU not Europe.
Earlier gains in the week were offset by a round of disappointing data on UK retail sales. Retail sales notched the biggest monthly decline (1.9%) since 2011 in December.
The dollar weakened this week due to heightened policy uncertainty ahead of Trump’s inauguration as investors held back. Mr Trump this week expressed concern about the strength of the US currency — prompting it to retreat — only for Janet Yellen, chair of the Federal Reserve, to subsequently deliver hawkish comments on interest rates that put it back on upward track.
Stock markets such as the S&P 500 and the Dow are hitting record highs and equities are rallying as a result of bullish investment behaviour in response to the proposed reforms put forward by the President during the elections.
Although sentiment is good, Trump has however failed to offer details on his promises to boost fiscal spending and cut taxes at a highly-anticipated news conference last week and also failed at his inauguration on Friday to detail his intentions with regards to tax reforms, infrastructure spending and deregulation – as well as insight regarding policies on China and the domestic economy.
A drop in the strength of the dollar as a result of Trump uncertainty and a rise in the value of Sterling as a result of a more established plan for Brexit and May’s positively-felt speech has led to a decline in the FTSE 100 (which translates around 70% of its revenues globally back into pounds).
Oil remains to do well at between $53 and $56 a barrel as promises by various countries, OPEC and not, to cut output start to show colour. This weekend market participants will also be looking for any clues at a Vienna meeting on Jan. 22 on the landmark agreement among major oil producers to cut production by nearly 1.8 million barrels per day.
US Bond yields rose again this week as 10 year treasuries were being sold off in the expectation that better returns can be earnt in the stock markets at the minute.