Will the UK go through a migration shock?

23 February, 2017

The plan successfully passed through the upper chamber and is now going to the committee stage where it’s likely to be amended to warrant better relations with the EU. One of the primary concerns are the rights of EU passport holders who are going to stay in the UK at the time of plebiscite. Citizens of the European Union account for 5 percent of the UK’s nation and losing legal residence may result in a migration shock, as well as the slate of critics from European politicians.

The UK 4Q GDP data is due today and it is projected to rise at the same pace as the 3Q at 2.2%. The private consumption, export, import and the total business investments may provide more insight into the economy although the past performance has had a silent response from the currency market.

Greenback rally runs out of steam, hitches near a monthly high to the 101.50 level. The upturn was probably referred in the hawkish cues from FOMC February Minutes which is due today. The US economy is far from overdrive considering the slower wage growth according to January NFP, while PCE is still at 1.7% in annual growth, below 2% the FED’s target. I believe that the FED has no intention to convince the market of the need for a rate hike, as the fiscal policy changes and taxation overhaul present a big uncertainty. They haven’t been announced yet and it’ll take the time to gauge their impact on the economy.
The S&P 500 is taken over by an intentional rally on the rumours of a steep fall for the FED as the policymakers are not likely to raise rates during the heightened volatility or sharp selloff in the equity markets. Our projection is that the FED will be discreet and circumvent in its rate hike forecast while the Dollar will again retreat off peaks to wait for the government plans announcement.

The Energy market is in the groove, as OPEC promises to deliver more output cuts to balance the market. According to the API report, the reserves in the US rose by whopping 10M barrels once again topping the estimates. Producers may expect the prices to extend growth thus piling stockpiles to sell them a higher price later. There should not a problem with the Oil demand in the US as growing reserves can be explained with more Oil rigs set to action increasing production pace. After more than a 1.5% rally on Tuesday, the prices continued to rise on Wednesday, but at a more discreet pace.

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