The pin in the grenade

The shocking violence that again erupted on the streets of Paris at the weekend shows no

signs of ending soon and as the turmoil across France continues; the more radical voices of

populism there are screaming louder than ever for France to withdraw from the European


Perhaps unsurprising therefore that it’s the French hierarchy who are the real driving force

pushing for an opposite outcome for the UK. Ok, granted there’s some assistance from

Poland and Luxembourg too of course! But if anyone reading this thinks it’s purely UK

intransigence and indecision that’s the real reason for the Brexit impasse, then just consider

what is at stake beyond British independence- a potential ‘Frexit’ perhaps and subsequent

breakup of the European union? In that respect Britain is a bit like the ‘pin’ in the grenade

according to someone I have spoken to. A metaphor, I should point out, that bears no

intended reference to any of last weekend’s events.

For most British voters it would appear that any fears and concerns surrounding our

departure are based largely on self interest and introspection and do not consider the equal

or even greater, and more far reaching concerns and consequences across the channel.

Indeed, concerns that have led Italian politicians to mount strong lobbies in Brussels

recently, as they seek to protect an almost EUR 1 billion monthly trade surplus with the UK.

Furthermore, the UK has an annual gross trade in goods deficit with the EU of around EUR

120 billion.

So perhaps, when looked at in the wider context it’s easier to understand why the French

inspired withdrawal agreement is so binding as to try and stop Brexit altogether. However,

at the same time it seems insane to let the politics and dogma put at risk what is, after all a

huge trading advantage for the EU. Anyway, I’ll leave you to ponder all that for now.

Meantime, the FX markets continue to watch and wait as inertia seems to be taking an even

tighter grip on activity. Having said that the CHF did go on a little ‘walk about’ overnight in

what looks like a stop loss driven move sharply lower: a move that was reversed with equal

speed though. Japanese markets were closed today for a public holiday, but the reopening

of the Chinese markets has seen gains in all their major bourses.

Those moves have helped the USDJPY lift above 110 overnight as both the EURUSD and

GBPUSD continue to remain under pressure. Consequently, it’s the dollar that’s the

strongest of the major currencies again this morning as the USD index lifts past 96.75. This

is all transpiring at the same time as US 10year yields have fallen back below 2.64%.

Consequently, lower US yields have not translated into a lower dollar and that’s partly down

to a more prescient concerns surrounding the EUR and the GBP. A test of 1.1300 EURUSD

looks imminent to me.

By the time you get to read this article a whole host of UK economic data will have been

released this morning. In fact, I believe this to be the largest batch of UK economic data

releases that I can ever remember hitting the screens simultaneously. The subsequent take

away from all this data is that all of the releases came in below expectations (some of them

quite significantly) save the print on 4th quarter 2018 GDP which is subject to revision

anyway. Further evidence, as if we needed it, that the UK economy was not exactly in a

sweet spot coming into 2019.

Naturally, and with Europe languishing too, neither is helping the other out much at the

moment and that’s continuing to feed into a stronger dollar. Meanwhile equity markets

globally seem to be casting a blind eye and a deaf ear to all the noise, but there is a degree

consternation out there which doesn’t seem misplaced to my way of thinking.

Important Economic releases due this week

12/02- 11.00am US January small business optimism index

13/02- 9.30am UK CPI, RPI and PPI January inflation readings

13/02- 1.30pm US January CPI inflation reading

13/02- 11.50pm Japan Q4 2018 GDP estimate

14/02 - 7.00am German Q4 2018 GDP estimate

14/02- 10.00am Eurozone Q4 2018 GDP and unemployment reports

14/02- 1.30pm US December 2018 retail sales

15/02- 9.30am UK December retail sales