Brexit Takes Fresh Toll on Sterling, While Dollar Firms more Broadly

UK Prime Minister May got the parliamentary approval the courts ruled was
necessary to formally trigger Article 50.
It is not clear what UK she will lead out
the EU.  Scotland is beginning the legal proceedings to hold another
referendum on independence.  There is some talk that Northern Ireland,
which voted to remain, might be allowed to rejoin the Republic of

It is also not clear precisely when May will formally invoke Article 50. 
Some expect Parliament to be told tomorrow during the Prime Minister question
time in the House of Commons.  Others suspect May might wait until later
this month for the EU Summit to celebrate its 60th anniversary, to formally
begin the two-year amputation negotiations.   In any event, there is
little uncertainty that Article 50 will be
before the end of the month.  

Sterling has taken it on the chin.  Its two-day rally, the
first, since February 20-21 has ended with an exclamation point.  Sterling
haws been sold through the shelf it had
carved last week in the $1.2135 area to record its lowest level in nearly two
months.  It found support in the European morning ahead of $1.2100. 
We have been targeting the trend line off last October’s flash crash low and
the mid-January low.  It is found today near $1.2055. 

For its part, the euro is trading firmly against sterling, but it has
been unable to rise above the two-day cap
near GBP0.8785.
  The intraday technicals warn that if the euro is
going to go through the GBP0.8800, it needs a running start, which means lower
levels first.  A pullback toward GBP0.8730 should not be

Against the dollar, the euro has shed a little more of its recent
  There is potential toward $1.0595-$1.0620.  Initial
resistance is now pegged in the $1.06660
area.   Meanwhile, the US10-year yields holding around 2.60%, the
dollar is again probing the JPY115.00 level.  In the past two months, despite
several pushes, the greenback has only been able to close above this cap once
since January 11.  Immediate support is
near JPY114.80.  

The main economic news today comes from China.  The general
thrust of the data is constructive and suggest that the world’s second-largest economy is off to a firm start. 
Due to the Lunar New Year distortions, China reports January-February data
combined.  Industrial output rose 6.3% year-over-year.  This was a little better sequentially and
slightly above expectations.  Fixed investment rose 8.9%, which is also an
improvement from the last report and above expectations.  

To the extent, there was the disappointment it came from retail sales.  
The 9.5% increase is the first sub-10% reading since 2003.  The incredible
year-over-year growth in retail sales has
been slowing gradually for several years.   Recall the 12-month
average year-over-year rate peaked in 2008 near 21.4%.  It is now at

News of the BJP’s overwhelming victory in Uttar Pradesh (312 seats out of
403, up from 47 seats five years ago), lifted Indian equities, with the Nifty 50 Index reaching new record highs.
The rupee rallied to about 0.65% to reach an 11-month high.  Excluding
Japan, the MSCI Asia Pacific Index rose 0.25%, its third successive gain and
the sixth of the past seven sessions.  Japan’s stocks edged lower,
snapping a three-day advance.  

European shares are mostly heavier,
with the Dow Jones Stoxx 600 off 0.25% in late morning turnover. 
remains within yesterday’s ranges.  Most
sectors are lower but consumer staples, health care, and utilities.
With the weakness of sterling lending support,
the FTSE 100 is holding onto minor
gains.   The German ZEW investor survey showed improvement over February, but not as much as the median survey response expected.  The assessment of the current situation rose to 77.3 from 76.4 (median Bloomberg guesstimate was 78.0).  Expectations rose to 12.8 from 10.4 (median was 13.0).  There was little market reaction. 

UK lawmakers were scathing in criticism of BOE Deputy Governor Hogg. 
At the heart of the issue was a failure to
disclose that her brother works for a UK bank.
  Hogg was put in charge of markets and banking at the
start of March.  

The North American session may be hobbled
by the winter storm
in the Northeast.
  The economic data
features PPI ahead of tomorrow’s CPI and retail sales.  The FOMC’s two-day
meeting gets underway today.  Nearly everyone expects a 25 bp hike in the
Fed funds target range tomorrow (to 0.7%-1.0%).  The key point of interest
is the forward guidance and the prospects for another hike at the end of
Q2.   The CBO scoring of the Republican health care plan was released
late yesterday.  This will be much
discussed today.   On the one hand,
the CBO is not infallible, and its
earlier forecasts of the Affordable Care Act (“Obamacare”) was not
particularly accurate regarding participation. 
On the other hand, it projects that 14 mln more will be uninsured next year
(rising to 24 mln by 2026).  The CBO reckons it will reduce the deficit by
$337 bln over ten years ($935 bln from
lower savings, with a $599 bln offset from lower taxes).  


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