The Euro declined in today’s early morning trading sessions as Italy looked on course for a hung parliament. The populist parties gained votes over the traditional political parties, seeing the anti-establishment Five Star Movement predicted to have gained the most votes. However, it appears as if the right-wing coalition formed of the Forza Italia and the League parties, will hold the most seats in the lower house of parliament. With no alliance or single party reaching over the 40% of the votes to allow them to form a government outright, a coalition will need to be formed or another election held.
After five months of political uncertainty in Germany, the Social Democrats voted in favour of forming a grand coalition, with German Chancellor, Angela Merkel’s Christian Democrats party. After concerns that the members of the SPD party might try to block the vote as they were promised the grand coalition would not be reinstated at the election, the party voted 66% in favour of joining a coalition. This will be Merkel’s fourth term as Chancellor and she is expected to be re-inaugurated by mid-March.
UK Prime Minister, Theresa May, gave her highly anticipated Brexit speech on Friday. The speech outlined her vision of the future relationship between the UK and the EU. May described how she still desires for the UK to leave the EU’s single market and custom union, but stay closely aligned on regulations in certain areas. She also explained how she does not want a hard border between Northern Ireland and the Republic of Ireland, but it would also not be acceptable to break up the UK, by keeping Northern Ireland in the EU’s regulatory regime. The speech did not reassure EU officials as they still have unanswered questions, which May is yet to address. However, EU Chief Brexit negotiator, Michel Barnier did mentioned he welcomed her ‘clarity’ on some issues.
The markets will be focusing on the release of the Services PMIs today. The first to be released will be from the Eurozone, which is expected to post 56.7. Individual readings will also be released from the largest Eurozone economies; Spain, Italy, France and Germany. Back in the UK, the Services PMI is expected to post 53.3, slightly up from the previous reading, which was a 16-month low. Across the pond, the ISM Non-Manufacturing PMI will be released, forecast to post 58.9. The day will end with FOMC member, Randal Quarles speaking about foreign bank regulation at the Institute of International Bankers Annual Washington Conference.
Tuesday will be a quiet day, with no high tier data on the economic docket. Two FOMC members are scheduled to speak. The first will be William Dudley, who will be speaking about the economic impact of the 2017 hurricanes. The second will be Lael Brainard, who will be delivering a speech titled ‘Economic and Monetary Policy Outlook’ at the New York University’s Money Marketeers event. Back in the UK, Bank of England’s Chief Economist, Andy Haldane will be speaking at the Royal Society for the Encouragement of Arts, Manufacturing and Commerce.
Wednesday will begin with the release of the revised GDP figure from the Eurozone, which is expected to post 0.6%. Across the pond, FOMC member Raphael Bostic will be speaking on the economic outlook. The ADP Non-Farm Employment Change is also expected to be released, which is forecast to drop from last month and post 194k. The Bank of Canada will be releasing their latest rate statement and interest rate decision. It is unlikely the Bank will decide to raise rates as the economy is seen to have been growing slower than expected in last week’s GDP reading, posting an annualised figure of 1.7%, rather than the 2% expected.
Thursday’s focus will be on the Eurozone, as the European Central Bank will be hosting a press conference after their latest monetary policy meeting. The markets will be looking for clues as to when the ECB will be bringing their quantitative easing programme to an end. However, with inflation slowing to a 14-month low to 1.2% in February, means they are likely to remain cautious about finishing the QE programme too quickly. Back in Canada, BOC Deputy Governor, Timothy Lane will be speaking about the BOC’s March interest rate decisions at the Vancouver Board of Trade.
There is a busy end to the week as the US release their latest employment data figures. The unemployment rate is expected to downtick to post 4.0%, whilst the Average Hourly Earnings is expected to remain static at 0.3%. The Non-Farm Employment Change is expected to remain relatively stable at 204k, 4k up from the previous month’s reading. Back in the UK, the Manufacturing Production report will be released, with the index expected to drop to 0.2% from 0.3% last month.