The FTSE 100 has begun the week in a bullish mood with a rise of more than 40 points seeing the index move back above the 7400 level. The pound has fallen back a little and currently trades below the 1.34 handle against the US dollar and not far from last week’s lows.
Economic data back in Focus for GBP
Last week’s trade in the pound was dominated by Brexit related headlines as the UK eventually managed to strike a divorce deal and allow future discussions to centre on trade. The week ahead will now likely see economics rather than politics back in the driving seat as far as sterling is concerned, with the latest CPI, UK employment figures and retail sales data due out before the Bank of England (BoE) rate decision at Thursday lunchtime.
Potential for a hawkish surprise
Last time out the BoE hiked the base rate for the first time in a decade, but there is little expectation for further moves this week. The market reaction to the hike was fairly subdued as it had been long telegraphed from MPC members, but given the latest Brexit breakthrough and the market not expecting another hike until the final quarter of next year there is some scope for a hawkish surprise. A solid batch of economic data this week, with tomorrow’s CPI reading of particular interest, could provide the bank with an opportunity to shift market expectations towards a faster pace of tightening and provide further support to the pound going forward.
Bitcoin futures does little for price discovery
The launch late last night of CBOE Bitcoin Futures has seen a strong move higher in the price, but a large divergence in price from several of the largest physical exchanges highlights the large levels of inefficiency still present. Shortly after the contract went live the CBOE website crashed, possibly due to a surge in traffic, but this wasn’t replicated by a surge in trade, with just 500 lots changing hands in the first hour. Proponents of the cryptocurrency argue that being listed on well respected exchanges will provide another layer of legitimacy to the market but the low volumes and sharp moves, which saw two trading halts occur after 10% and 20% gains on the day, have failed to dampen the volatility.
CBOE futures trade at large premium to cash
Furthermore, a wide divergence between the futures price and the cash has been created with a large contango apparent in the futures curve. This saw a premium of more than $2000 in the January contract to the spot at one point overnight. This leads to more questions than answers regarding the true value of Bitcoin, and provides a potentially attractive arbitrage opportunity from shorting the futures and longing the cash. Before traders rush in to try and profit from this huge divergence it should be noted that the premium may well simply be seen to reflect the greater trust placed in the CBOE marketplace compared to other digital Bitcoin exchanges which have been prone to several outages in the past week alone.