Brexit vote dominates news agenda

It seems difficult to imagine the news agenda this week being dominated by anything other than Brexit, with a pivotal vote on the UK’s future due to take place in Parliament on Tuesday. The outcome has the potential to generate some exaggerated volatility for the Pound. If politicians accept the deal, Sterling could stage a relief rally, while in the event of Theresa May losing, political uncertainty will be increased. In this event, the country would be pushed one step closer to a general election, with a higher potential of crashing out of the European Union, in a ‘worst case scenario’ fashion.

Monday

Eurozone Industrial Production numbers for November are due to be released at the start of the week. The year-on-year figure is forecast to show a -1.2% decline, reversing last month’s +1.2% rise. This would make for the first time a negative print has been seen in almost two years and be the worst reading in around six years. With the European Central Bank (ECB) already eyeing fresh ways to stimulate the economy now that its bond-buying scheme has been concluded, a negative print would give added impetus to finding a new solution fast.

Tuesday

At some time after 7pm GMT on Tuesday, UK Politicians will finally have the opportunity to vote on Brexit. This vote had been due to take place around a month ago, but facing inevitable defeat, the government opted for a delay. How politicians will act now remains to be seen—victory for Theresa May would pave the way for an orderly departure from the European Union and provide some reassurance to financial markets. Conversely, defeat risks both a general election and a chaotic exit at the end of March. Proposed amendments to the bill could delay the final vote, and if this doesn’t take place until closer to midnight, thin underlying market volumes on GBP and EUR have the potential to see significantly exaggerated levels of volatility off the back of the news.

The US Producer Price Index for December is expected to come in at -0.1%, reversing last month’s +0.1% increase. In short, this means that manufacturers are paying less for component parts, which would, in turn, have the potential to apply downward pressure on consumer inflation. Assuming forecasts are met, this would be the first contraction seen since last summer.

European Central Bank Chief Mario Draghi also addresses the European Parliament regarding the ECB’s 2017 report. Any indications over fresh economic stimulus measures from the bank will be under scrutiny.

Wednesday

UK Consumer Price Index (CPI) inflation for December will be tabled on Wednesday. The market expects this number to come in unchanged at 2.3%, but that’s down from the highs seen over the last two years where forays over 3.0% have been seen. This aligns with the challenging environment seen by retailers in the run-up to Christmas and has the potential to reiterate the fact the Bank of England (BoE) has little scope to be hiking interest rates in the near-term.

Advance US Retail Sales numbers for December are forecast to come in unchanged at 0.2% month-on-month, which isn’t all that far below average for the last 12 months. However, the lack of expansion with a strong underlying economy and the Christmas effect could potentially be seen as worrying. With US Federal employees going unpaid, their propensity to spend is now being curtailed, and this is going to take a toll on the early 2019 figures, again raising fears that the Federal Reserve may have moved too quickly.

The Chief of the French central bank gives a New Year address to the French financial sector in Paris. After his cautious approach, last week proved sufficient to drag on the Euro, the tone here will be closely watched.

Thursday

Eurozone Consumer Price Index inflation for December will be released. The annualised rate is expected to fall from 1.9% to 1.6%, making for the lowest reading since April and is again likely to raise questions at the ECB over the need for fresh economic stimulus.

The Federal Reserve Bank of New York President speaks on monetary policy and the outlook for the U.S. economy.

Friday

UK Retail Sales for December will be published, and the month-on-month figure is expected to show a decline of -1.1%. That will make for the worst figure in almost two years and likely be reflective of the disappointing inflation data which is expected earlier in the week. Such signals push back any prospect of a Bank of England rate hike and in turn, have the ability to weaken Sterling as a result.

Rounding out the week will be the University of Michigan Sentiment data. The preliminary January reading is forecast to come in at 96.7 against last month’s 98.3, putting the print down towards the lower end of the range seen in the last 12 months. Broader economic uncertainty and unpaid government staff will likely combine to depress this figure.