JPY climbs on growing political uncertainty ahead of Tuesdays big Brexit speech
US markets were closed for Martin Luther King Day but there was still quite a bit of action in the markets. In particular, currencies sensitive to changes in political risk have been active amid increasing signs that the tired old international order that has dominated the last quarter-century is on way out along with President Obama on Friday.
The UK and Brexit stole the spotlight ahead of UK PM May’s speech on her negotiating stance Tuesday at 11:45 am GMT. Reports over the weekend that she is prepared to pursue a hard Brexit (which UK polls have been showing as increasingly popular in the island nation), rattled the pound early Despite seeming to have every reason to go lower, the Pound quickly bounced back above the big $1.2000 level, suggesting that Brexit risk has been fully priced in for now. EUR, on the other hand, remained under a cloud through the day particularly relative to GBP and JPY.
What amazes me is that more people haven't figured out that Brexit has far more downside risk for the EU than it is for the UK. It’s going to be much more difficult for the EU to complete with a UK unshackled from the mountains of EU regulation and policy that have been holding it back, and with a cheaper currency to boot. Plus the UK has other friends it can do business with. Over the weekend, US President-elect Trump indicated he supports reaching a quick trade deal between the US and UK. He expects Brexit to be a big success and that other countries could follow Britain out the door. He also described the EU as an instrument of German domination (let’s ask Greece and others that one and see what they think) and called NATO obsolete. Clearly change is coming.
Shifting from the Atlantic to the Pacific, a shakeup of political relations also appears to be coming. Since the weekend there has been a big kerfuffle between the US and China over the One China policy. Donald Trump followed up his previous phone call with Taiwan with comments suggesting the One China policy is up for negotiation while China has been running around saying it’s not.
Considering how China has dominated trade between the two countries since the turn of the century at least, and how China totally won the climate change deal between the two nations, rockier relations could have a big impact on China.
The Hang Seng was soft yesterday but was stronger in late trading so today’s action could give a better idea or whether the economy or politics has the upper hand at the moment. JPY has been benefitting from some capital flowing back into defensive havens as the brief post-election honeymoon fades and political uncertainty comes roaring back with the European elections still to come.
Inauguration Day is fast approaching on Friday and with it, the potential for significant changes to the international order that has dominated since the end of the Cold War. At the same time, the status quo hasn't been working for a lot of people on a lot of levels for a long time and there are a lot of tired institutions overdue for a shakeup and overhaul. Change doesn’t have to be feared, change can bring opportunities. It’s time for nimble traders to embrace change and be ready to capitalize on opportunities.
There have been no major announcements after the US close today
Significant announcements released overnight include:
There have been no major announcements in the US or North America Today.
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
9:45 am AEDT NZ food prices
10:30 am AEDT Japan industrial production previous 1.4%
9:30 am GMT UK consumer prices street 1.4% vs previous 1.2%
9:30 am GMT UK core CPI street 2.3%
9:30 am GMT UK retail prices previous 2.5%
9:30 am GMT UK producer input prices street 15.8%
9:30 am GMT UK producer output prices street 2.9%
9:30 am GMT UK house prices
11:00 am GMT Germany ZEW current street 65.0
11:00 am GMT Germany ZEW sentiment street 18.8
11:45 am GMT UK PM May speech on Brexit
8:30 am EST US Empire manufacturing street 9