Afternoon analysis 08.02.2017

Brexit may cost the British financial sector 30k workplaces. Prime Minister Theresa May fights over the final form of the Brexit procedure against the opposition. The zloty’s condition is improving, but the EUR/PLN remains above 4.30.

Voting over Brexit

According to the verdict from the British Supreme Court, Theresa May’s government has to obtain approval from the Parliament, in order to initiate the Brexit process. Currently, the British Parliament debates on the form of the regulation, which will authorize Prime Minister May to activate the Article 50 of the Lisbon Treaty. Yesterday, the Parliament denied the amendment, which gave legislators a larger impact on the final form of the Brexit agreement.

The opposition wanted to force the British prime minister to return to negotiations with the EU, if they find the Brexit conditions unsatisfying. Eventually, Theresa May’s opponents were defeated by David Jones (Minister of Brexit), who promised voting over the final agreement with the EU (shortly before its sending). Moreover, he threatened that if the Parliament does not accept the agreement’s final form, the United Kingdom will be bound to agree on less favorable conditions from the World Trade Organization (WTO).

New amendments will be voted today. After the final voting in the House of Commons, the agreement’s project will be passed on to the House of Lords. Prime Minister May has set March 31st as the date of activating the Article 50.

Recently, the pound has been relatively volatile, because of the comments regarding Brexit. This shows the uncertainty that leaving the EU by the United Kingdom has been causing. However, the British economy seems relatively immune and supports the pound.

Nevertheless, there are opinions that Brexit will cost the UK a lot. The Bruegel think tank claims that the City of London may lose approximately 30k workplaces in both financial and legal sector. This would be a result of relocating businesses worth 1.8 trillion euro. The potential main locations for transferring business activity from London are Frankfurt, Paris, Amsterdam and Dublin.

The pound was relatively calm this afternoon. The GBP/USD was slightly above 1.25. However, this was mainly caused by the weaker dollar, because the EUR/USD went from 1.064 to 1.068 and the USD/JPY was pushed below 112. This caused the dollar’s index to drop to the area of 100.2 points.

Zloty is slightly stronger

The zloty’s condition improved after the main currency pairs reach their today’s maximum at approximately noon (EUR/PLN, USD/PLN, CHF/PLN, GBP/PLN). The EUR/PLN went down from 4.31 to 4.32. The zloty has strengthened approximately 5% over the past two weeks. Its current work-off confirms the thesis that this appreciation might have been to intense. Moreover, the appetite for the zloty is not as significant to sustain the Polish currency’s recent growths.

If the zloty ends this day below 4.30 against the euro or below the level of 4 and 5 against the dollar and the pound, respectively, this would show that a positive trend on the PLN may be continued. The Monetary Policy Council left interest rates unchanged, as it was expected. The MPC announcement stated that prices will stabilize in the forthcoming quarters. This would be a result of a decrease in the global oil prices. Due to a low internal demand pressure, the Council claimed that there are minor chances for exceeding inflation goal in the mid-term. Therefore, rate hikes in 2017 still remain unlikely.

Tomorrow’s events

At 8.00 AM, Destatis will publish the data regarding the German trade balance for December. Over the past few years, the foreign trade balance has been gradually increasing. In April 2016, it reached its record value (24.1 billion euro). However, this index was slightly lower in November (21.7 billion euro), but its value was still by 0.5 billion euro better than the market consensus. This was mainly a result of the largest export growth in more than two years (3.9% MoM). Moreover, import increased to its largest historical values (3.5% MoM).

Currently, the market consensus is at the level of negative 1.3% and the level of 1% for export and import, respectively. This would cause a slight decrease in the trade balance. However, this decrease will most likely be a result of the Christmas period, during which some companies work shorter shifts or take a holiday break. Even though weaker data may initially cause the euro’s wear-off, its impact should be limited.

At 2.30 PM, the American Labor Department will publish the weekly jobless claims index. The market consensus is at the level of 249k. This is 3k more than its previous result, but still near this index’s historical minimum from the beginning of November. Due to the lack of other significant data tomorrow, jobless claims report may increase the dollar’s fluctuations. However, this impact seems limited, because this index remains below the 300k level.