Sterling Drops as House of Commons Rejects Brexit Bill Proposal

European stock markets are mixed and mostly lower, with the FTSE 100 the notable exception and managing to carve out slight gains as Sterling continues to decline. Investors continue to remain cautious ahead of tomorrow’s Fed policy review and Asian markets already moved sideways, with the Nikkei posting a -0.12% loss at the close, while the ASX managed a marginal 0.03% gain. U.S. stock futures are down oil prices are slightly up on the day.

Cable dropped to a fresh eight-week low following the House of Commons rejection of a proposed amendment to the Brexit bill that would have forced the government to seek parliamentary approval if the UK is forced to leave the EU without a new trade deal. The rejection means that the government is now free to proceed and invoke Article 50, as well as exit the EU on WTO terms.

SNP leader Sturgeon also confirmed, that she will call for a new referendum on Scottish independence, which she said would be held between Autumn 2018 and early 2019, when the UK’s exit terms from the EU will be clearer.

Eurozone industrial production rose 0.9% month over month in January, after falling -1.2% month over month in the previous month. The rebound was better than we expected, but below Bloomberg consensus after mixed national data. The annual rate fell back to 0.6% year over year from 2.5% year over year. Numbers have been volatile, and the three months’ trend rate remains unchanged at 0.9%, unchanged from December and November and with confidence indicators continuing to improve, the data are still consistent with ongoing economic improvements ahead.

German ZEW Rose in February

German ZEW investor confidence rose to 12.8 from 10.4 in the previous month. A tad below Bloomberg consensus, but still a sign that the number of those optimistic about the economic outlook continues to rise, although uncertainty continues to keep a lid on investment sentiment. The current conditions indicator improved to 77.3 from 76.4. Further signs then that the German and overall Eurozone recoveries remain on track.

The markets will focus on the FOMC Wednesday which is widely expected to hike rates another 25 basis points to a 0.75% to 1.00% policy band. This would be the third tightening of the cycle and recent Fedspeak suggests the normalization process could be undertaken in earnest later this year. Key for the immediate outlook, however, will be the dot plot, and whether the Fed sticks with the 3-hike scenario from December, or upgrades it to 4 tightening in 2017 and beyond.