Market Drivers for February 26, 2019
- Cable soars on no-hard-Brexit relief
- All eyes on Powell in NY session
- -0.37% -0.17%
Europe and Asia
USD: Housing / 8:30
USD: Powell Congress Testimony 10:00
was the star of the show in overnight trade tonight as the pair finally broke through the 1.3200 resistance line on renewed market confidence that a hard-Brexit exit from the EU was not going to happen.
Two events yesterday helped fuel the rally. One was the formal call by Labor party leader Jeremy Corbyn for a second Brexit referendum and the other was reports that PM May would consider extending the deadline if her Brexit negotiated deal could not pass Parliament.
In both cases, the Labor and Tory leaders were clearly reacting to the revolt within their respective parties against a seeming slow roll toward an economic cliff edge. The events of the past 24 hours appear to have put a hard break on the possibility of a very messy and disruptive non-negotiated exit of UK from EU. The market has long held that bias with cable remaining bid over the past few months despite repetitive failures to reach a deal and today’s event appear to have validated those views.
Having now priced in the prospect of no hard Brexit, cable may consolidate at these levels as the political wrangling continues, but barring some unforeseen scenarios today action suggests that a non-negotiated exit will not occur.
In North America today the focus will be on Fed Chair Jerome Powell who will provide his semi-annual in front of Congress. The key focus of the market will be on whether Mr. Powell will deviate from his dovish stance. This appears unlikely as the history of Fed policy changes suggests that it will stick to an easing course to engineer a soft landing of the economy before resuming normalization.
Although economic activity has picked up post the chaos of US government shutdown, it is still too early to tell if it has hit trend growth. The prudent choice would be for Powell to maintain his easing-focused rhetoric. However, the danger lies in the fact that Fed may want to assert its “independence” and if Chair Powell indicates that rate hikes will resume in the second half of the year the rally in risk assets that we have seen over the past month could come to a screeching halt.
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