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Brexit, UK labour market, and central banks in focus

Tuesday – UK labour market data. Reports of enthusiastic hiring by UK companies ahead of Brexit should bolster this figure.

Wednesday – The Federal Reserve interest rate announcement. No change in interest rates is expected, but this event may hold clues as to the timing of any end of corporate bond sales.

Thursday – Eurozone Consumer Confidence. Weakness here will be an added concern for the European Central Bank (ECB) as it attempts to steer the currency bloc from recession. 


Confidence is growing that Theresa May might finally be in a position to secure victory on her third attempt at a Brexit deal. It is clear that another rejection of the current deal will increase the risk of a lengthy delay or no Brexit at all. Intense lobbying has been reported behind the scenes, and another meaningful vote could be held today or tomorrow. Failure at this juncture could leave Sterling under considerable pressure.


UK unemployment and average wage readings for January are scheduled to be released. Set against news that many UK employers have been staffing up rather than investing in capital assets ahead of Brexit, this figure could appear rather flattering. Markets are expecting to see unemployment unchanged at 4.0% and expect average earnings to grow by 3.4% year-on-year. However, these numbers are essentially stagnant as the UK faces the cliff-edge of Brexit, and Sterling could struggle if the figures come in any worse than expected. 
The forward-looking German ZEW sentiment reading for March is set to be released today. After steady improvement from October’s low of -24.7, markets are looking for a reversal, underlining the cautious tone set by the European Central Bank at the monetary policy meeting earlier this month. Expectations are for a print of around -20, but given recent appreciation of the EUR, even an in-line print could result in profit-taking against the common currency.


The UK Consumer Price Index (CPI) inflation reading is due for release this morning. The 1.8% recorded in January was the lowest in two years, and hopes are that there will be no further deterioration in this figure. Admittedly the Bank of England (BoE) has bigger issues at hand with Brexit right now, but a significant miss would do little to instil confidence in the Pound, especially considering recent wage growth should be lifting disposable incomes.
The Federal Reserve makes its latest call on interest rates today, and although there are no expectations that the underlying rate will change, any signals about the pace and duration of the quantitative tightening programme could provide some direction for the US Dollar. In the face of it, it appears the sluggish US economy is pushing the Fed to suspend its exit from the bond market. Confirmation of project curtailment in response to the weakening of the domestic economy could see the Greenback weaken.


UK Retail Sales for February could be something of a surprise today. A 0.4% decline has been forecast after January’s sharp 1.0% month-on-month increase. The figure has been flipping between positive and negative over the last year, but a slump would be in line with concerns over the outlook for the consumer economy as Brexit uncertainty prevails.  
The Bank of England also makes its interest rate call today. Again, there’s no expectation for change, but BoE Governor Mark Carney may repeat his incredibly cautious Brexit mantra. Markets are primarily monitoring commentary from EU actors for indications of their stance on a likely request for Brexit extension.
Flash Eurozone Consumer Confidence data for March is published today. Since the end of last year, this figure has been plotting a steady recovery, but a sharp reversion is now seen as likely. A reading of -10.8, down from last month’s -7.4, would be the worst print in over four years, highlighting the mounting uncertainty over the economic outlook for the currency bloc. 


Markit’s Manufacturing Purchasing Managers Index (PMI) prints for both Germany and the Eurozone are expected today. Both readings are forecast to show an improvement, with the German figure remaining in contraction at 49.1 but significantly improved on last month’s 47.6. Across the currency bloc, a print of 50.4 is expected, illustrating a return to growth from last month’s 49.3. Critically, failure for the broader number to see a return to growth could see fresh pressure tipped upon the Euro.
The US monthly budget statement rounds off the week, against a backdrop of rampant Federal government spending and falling tax receipts in light of the fiscal overhaul dictated by President Trump. As such, a return to negative territory is expected, with a deficit of around $22 billion forecast. With no end in sight to the lack of fiscal prudence, anything below forecasts could raise questions over the health of the US Dollar and in turn lead to some selling pressure heading into the weekend break.