GBP: Honda closure and Labour splits
Brexit news was cast through both the lens of business and politics yesterday. Honda’s decision to shutter its plant in Swindon is another blow for the UK car industry and will see 3500 people unemployed as a result as well as many more along the integrated supply chains that underpin that industry. Brexit is not the main cause of the closure but it gives businesses like Honda more than enough of an excuse to shut them down.
Similarly, the split away from the Labour Party of seven MPs was ostensibly due to many reasons at the core of the ideals of those leaving but all have positioned themselves as advocates of a second referendum.
Unfortunately for both the second referendum supporters and Honda workers, it’s all come a bit too late and neither decision is likely to change the mathematics in the House of Commons on Brexit anytime soon. Sterling hardly reacted to the news yesterday and will instead be focused on today’s job report. As we noted yesterday, while we expect unemployment to rise eventually, we don’t think we’re at that point yet.
Sterling support could come from confirmation that the rate of wage increases are continuing to improve although it would take a substantial drive higher in pay for investors to revisit their expectations as to when interest rates will rise in the U.K. The release is due at 09.30.
AUD: Thursday’s jobs are all important
Ahead of Thursday’s important jobs release in Australia, today’s meeting minutes from the Reserve Bank of Australia once again showed just how keenly balanced the interest rate discussion is down under. The key takeaway remains that, while the RBA is targeting 2.5% inflation, the risks to the downside are more evenly balanced than before. Thursday’s jobs report will go some way to moving the discussion one way or the other.
For now, the AUD has traded in line with more other trade-related currencies and finds itself a little weaker against the USD this morning.
USD: Trade talks resume in Washington
With trade talks between the U.S. and China resuming today in Washington, the dollar is back on the front foot. Yesterday was all about hope with riskier assets gaining, today is all about reality. Chinese Vice Premier Liu He will attend the talks with U.S. Trade Representative Lighthizer and U.S. Treasury Secretary Mnuchin this Thursday and Friday.
Both parties have nine days to find a compromise or sign an extension to the March 1st deadline or the U.S. tariff regime will kick up to levels that will drag trade and wider global growth further into the mire.
The closer we get to the deadline with no arrangement or extension, the better for the USD – purely on the basis of its quality as a haven currency.
The U.S. data calendar is quiet today.