Europe at Risk: Italian Referendum Rejected as Brexit Supreme Court Case Begins
The week ahead is filled with risk events. An immediate start out of the gate is the result of the Italian Referendum vote held over the weekend. Italians rejected the nation’s constitutional overhaul and are now left staring at political turmoil and a burgeoning banking crisis. Italy is the Eurozone’s third largest economy and it is in for a bumpy ride ahead. Other key event today is the UK Supreme Court hearing on the government’s appeal of the Brexit vote. Looking ahead, the European Central Bank (ECB) is scheduled to hold its monetary policy meeting later this week.
The just out data showed that UK’s Markit services purchasing managers’ index (PMI) unexpectedly advanced to a 10-month high in November. Meanwhile, the Eurozone’s final services sector PMI surprisingly declined last month. Later today in the US, the ISM non-manufacturing PMI for November would be awaited.
Pound Sterling – UK Markets
Brexit related discussions are back in the limelight, as UK’s Supreme Court initiates a landmark legal hearing today. It is concerning an appeal by the British government against a High Court ruling that the Prime Minister (PM) must consult Parliament before triggering Article 50. It is expected to last four full days and the verdict will be declared only next year. If the Supreme Court dismisses the government’s appeal, it could derail the British PM Theresa May's timetable for leaving the European Union. On the data front, a just released report showed that UK’s services PMI unexpectedly climbed in November. Separately, the latest BRC shop price index showed that Britain’s overall shop prices declined in November, suggesting that retailers are yet to pass on the higher costs associated with sourcing goods from overseas to customers.
On Friday, Sterling finally managed to break away from the 1.23 to 1.25 range and ended up above the crucial 1.27 mark against the greenback, after Britain’s construction PMI rose to a 7-month high level last month.
US Dollar – US Markets
The US Dollar weakened against most of its major peers on Friday, after the US Labour Department’s November employment report painted a mixed picture. The most awaited report, before the Federal Reserve (Fed) announces its monetary policy decision, revealed that employers added less number of jobs than expected in November. On the other hand, unemployment rate surprisingly dropped to 4.6% in November, the lowest level since August 2007. Supporting the weaker than expected growth in jobs was the wage growth report, which indicated that average hourly earnings declined on a monthly basis in November, while the annual growth slowed during the same month.
The greenback is trading on a stronger footing against its major counterparts this morning. Going ahead, investors will closely watch the ISM non-manufacturing PMI, which is likely to register a rise for November. Accompanying the services report will be the final Markit services PMI and labour market conditions index. Additionally, two of the Federal Reserve’s key officials are scheduled to speak today.
Euro – European Markets
This morning, the Euro is trading on a weaker footing against the greenback and the Pound as the results of the Italian Referendum are front and centre, and as market participants digest the implications of the “No” vote for the Eurozone. Italian voters delivered Prime Minister, Matteo Renzi, a stinging defeat on his reforms in the country. The verdict shook up the Eurozone’s third biggest economy’s political scenario and casts doubts on the recovery of the nation’s ailing banking sector.
Earlier in the session, data showed that the Eurozone’s services sector activity surprisingly dropped in November, while German services sector data surpassed market forecasts during the same period. Going ahead, the near-term dynamics of the Euro-US Dollar currency pair will be determined by this week’s ECB monetary policy meeting. Policymakers are set to decide on the future of the central bank’s asset purchase programme, which is scheduled to end in March. Given the result of the Italian referendum, the need for the ECB to extend it further remains heightened.
Other Currencies – Highlights
The Japanese Yen is trading lower against the US Dollar this morning. A few economic releases from Japan have already crossed the wires. The latest survey from Nikkei revealed that Japan’s services sector continued to expand in November, recording its highest reading since January this year. On the other hand, survey figures from Japan’s Cabinet Office showed that the nation’s consumer confidence index declined for the second consecutive month in November. It registered its weakest level in six months, signalling that the government’s pledge to kick start the world’s third-largest economy still looks elusive. Separately, the Bank of Japan Governor, Haruhiko Kuroda, did not make any remarks about the central bank’s monetary policy programme, while speaking in Tokyo today.
Looking ahead, this week seems pretty busy for Japan, as a string of economic data-points are up for release. This includes the nation’s third quarter GDP data, Eco Watchers Survey and trade balance data along with the leading economic and coincident indices.