Rumours around Theresa May’s speech on Tuesday have got markets moving first thing on Monday morning, as expectations grow that we could see signs of a concrete plan from the Prime Minister. Expectations are that she could well drop access to the single market in order for the UK to take back control of its borders, if this is the case then we could well see huge moves in both FX and equity markets. The newspaper reports over the weekend have already dragged cable below the 1.2000 level for the first time since the flash crash saw the pair drop fall to lows at the 1.14 handle.
For the start of the week it will be Brexit that dominates, as Monday sees US markets closed for the Martin Luther King holiday in the US, so with markets closed we are likely to be looking at lower volume across the major markets. However, the lower volatility does not always mean that we get a quiet day on the markets as lower volume can often breed higher volatility. However, today’s economic calendar is looking rather light of data, with only trade balance readings from the Eurozone at 10am big enough for traders to take note. Later this evening we will get a speech from BOE governor Mark Carney but until then we could see markets struggle for direction.
The US holiday will give the rest of the markets time to decipher stories from the weekend and Friday after earnings took centre stage with banking stocks JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Blackrock (NYSE:BLK), and Wells Fargo (NYSE:WFC) all reporting. As the week moves on earnings are likely to be a lot more important with Morgan Stanley (NYSE:MS) on Tuesday and Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Netflix (NASDAQ:NFLX) all reporting on Wednesday.
The extra focus comes as US equity markets and the US dollar seem to have started to run out of steam on the back of Donald Trump’s news conference last week. We had seen the market rally in both assets rather over extended, and if earnings for the fourth quarter start to disappoint then we could well see the Dow start to move away from the 20,000 mark rather rapidly.
All in all we will have a quiet start in terms of volume this morning, but with the PM’s speech on Brexit tomorrow, and the huge amount of uncertainty surrounding the subject, UK assets could well be largely at risk today as the rumours fly about hard Brexit. If the stories of the weekend do end up ringing true, then a UK outside of the single market would be an even bigger recalculation of sterling against the other major currencies.