Financial market research and analysis

The EU and the UK officials meet in Brussels to negotiate Britain’s place in the EU today. David Cameron is hoping to reach an agreement on three critical subjects 1. That EU treaties should be modified according to concessions that the UK has secured 2. That the UK’s participation in decision making regarding the euro-area should be defined precisely 3. That the UK’s desire to restrict the welfare payments to migrants and the migrant crisis should be discussed in detail.

The FTSE stocks struggle to keep their head above the water today. The UK miners lead losses with Anglo American (-6.29%), Glencore (-3.50%) and Rio Tinto (-3.28%). The recovery in oil could not prevent Royal Dutch Shell from losing 2.55%.

The pound is feeling the pinch. Both bulls and bears are on the sidelines as the Brexit risks are, in the short-run, two sided. A potential EU-UK agreement this week could well trigger a relief rally and push the pound above the 1.4350 resistance, aiming to grasp the 1.45 handle against the US dollar. Any perceived failure to reach an agreement in Brussels could revive the bears and push the pound down to 1.4150 support, before a further attempt to 1.4080, January dip.

The risk reversal on EUR-GBP with one month maturity advanced to the highest level suggesting that investors are increasingly hedged against the depreciation risk in pound. There is little doubt, the UK’s exit from the EU will have a significant impact on the economy.

Around the World.

Asian stocks were mostly bid; Nikkei and Topix gained 2.28% and 2.25% although the Japanese exports slumped 12.9% in January. Imports contracted by another 18%. BoJ Governor Kuroda said that the negative interest rate policy (NIRP) serve to lower Japanese rates, to boost the economy and that bond purchases will continue. He added that policies do not target the currency levels. But of course they have an impact. For the time being however, the softness in the US dollar prevails.

Chinese consumer price inflation slowed to 1.8%y/y from 1.9% in January, the contraction in producer prices eased to 5.3%y/y from -5.9% previously yet the contraction continues since four years.

The Fed minutes revealed that the committee discussed altering the appropriate path for the Fed Funds rate, reported Reuters, ‘a number of members viewed risk to inflation outlook as being to the downside, were concerned about the drag on economy from possible greater-than-expected, other EMs.’

40,600 full-time workers lost their jobs in Australia in January, 32,700 part-time jobs were added. The unemployment rate unexpectedly rose to 6.0% from 5.8%. AUDUSD sold-off to 0.7134 following news.

WTI is again above $30 as Iran welcomed a freeze in output, while not saying a word on any potential cut. The sugar rush in oil may leave the early buyers disappointed as the agreement to freeze the output at the historical high levels is perhaps insufficient to adjust supply to the softening global demand.