European Stock Markets
As Brexit talks enter a crucial phase this week, pound traders are cautiously waiting for signs of progress toward a transition deal. Even if those expectations are met, any gains in the currency may be short-lived.
While U.K. Brexit Secretary David Davis has expressed confidence that a deal on the exit terms and the transitional period was “within reach” ahead of the March 22-23 European Union summit, markets remain far from convinced. BlackRock Inc. said last week that sterling’s near-term direction remains unclear even as a big move is expected, while a Barclays Plc survey of investors found that most respondents didn’t expect an agreement until at least October.
With Davis and his European counterpart due to give a press conference on Monday, Nomura International Plc expects an accord this week and recommends a long position in the U.K. currency against its Canadian counterpart. Aberdeen Standard Investments and Rabobank see any pound appreciation as brief, given longer-term challenges faced by Britain including that of reaching a post-Brexit trade pact with the EU.
The Bank of England’s meeting on Thursday is also in focus, with investors watching for hints that the central bank is ready to raise interest rates as early as May.
The U.K. currency gained 0.2 percent to $1.3967 as of 9:34 a.m. London time on Monday, and was up 0.3 percent to 87.93 pence per euro. The yield on 10-year U.K. government bonds advanced 3 basis points to 1.46 percent.
Stumbling Blocks
The biggest stumbling block to the transition deal so far has been the Irish border, with U.K. Prime Minister Theresa May saying, following the first draft, that no U.K. leader could accept such a deal. Although it’s looking more likely that a compromise will be reached in time for the EU summit, this could mean the problem resurfaces later in the talks.
Ahead of the BOE meeting, a hawkish shift of stance by the central bank is largely priced in for sterling. Market pricing currently suggest an almost 82 percent chance the bank will raise borrowing rates in May, up from just 5 percent at the start of February.
Higher Stakes
That probability could move up to almost 100 percent if a transition deal with the EU is reached, provoking a sell-off in front-end gilts, according to John Wraith, head of macro rates strategy in London at UBS Group AG.
While U.K. Brexit Secretary David Davis has expressed confidence that a deal on the exit terms and the transitional period was “within reach” ahead of the March 22-23 European Union summit, markets remain far from convinced. BlackRock Inc. said last week that sterling’s near-term direction remains unclear even as a big move is expected, while a Barclays Plc survey of investors found that most respondents didn’t expect an agreement until at least October.
With Davis and his European counterpart due to give a press conference on Monday, Nomura International Plc expects an accord this week and recommends a long position in the U.K. currency against its Canadian counterpart. Aberdeen Standard Investments and Rabobank see any pound appreciation as brief, given longer-term challenges faced by Britain including that of reaching a post-Brexit trade pact with the EU.
The Bank of England’s meeting on Thursday is also in focus, with investors watching for hints that the central bank is ready to raise interest rates as early as May.
The U.K. currency gained 0.2 percent to $1.3967 as of 9:34 a.m. London time on Monday, and was up 0.3 percent to 87.93 pence per euro. The yield on 10-year U.K. government bonds advanced 3 basis points to 1.46 percent.
Stumbling Blocks
The biggest stumbling block to the transition deal so far has been the Irish border, with U.K. Prime Minister Theresa May saying, following the first draft, that no U.K. leader could accept such a deal. Although it’s looking more likely that a compromise will be reached in time for the EU summit, this could mean the problem resurfaces later in the talks.
Ahead of the BOE meeting, a hawkish shift of stance by the central bank is largely priced in for sterling. Market pricing currently suggest an almost 82 percent chance the bank will raise borrowing rates in May, up from just 5 percent at the start of February.
Higher Stakes
That probability could move up to almost 100 percent if a transition deal with the EU is reached, provoking a sell-off in front-end gilts, according to John Wraith, head of macro rates strategy in London at UBS Group AG.
No comments:
Post a Comment