UK economy shows signs of weakness
(Arnaud Masset, market analyst)
The UK economy has weathered surprisingly well since the Brexit vote as economic data consistently surprises to the upside. However, dark clouds have started to gather on the horizon as the reality of Brexit becomes a major concern for businesses and consumers. January UK retail sales came in on the soft side with the headline gauge contracting 0.2%m/m versus an expected expansion of 0.7%. In addition, the previous month’s reading was downwardly revised to -2.2% from -2% initially estimated. Sales have been gloomy since December as retail customers brace for the Brexit shock. We do not expect this trend to improve in the short-term against the backdrop of rising inflation and growing concerns about the UK’s outlook outside of the European Union.
The pound sterling partially erased Friday’s losses this morning as it rose 0.55% against the greenback with GBP/USD hitting 1.2480. On the medium-term, the trend remains negative as traders are reluctant to take long positions before negotiations begin. According to CFTC data, net short speculative positioning remained stable last week at roughly 30% of total open interest. On the technical side, the strong resistance standing at 1.28 will continue to cap any upside gains, while on the downside, the 1.23-1.24 area will act as support.
Russian economic recovery continues
(Yann Quelenn, market analyst)
Russia's unemployment rate will be released later today, which should increase to 5.4% from 5.3%. However, this rise should be viewed as a purely seasonal increase as unemployment in Russia tends to rise at this time of the year.
What really matters to us at the moment is the business environment and it seems that there is more confidence in the Russian economy since Trump’s election as relations between both nations thaw and even warm.
Commodity prices are also on the rise, which is definitely helping Russia, even though crude oil prices are stalling below $54. GDP expectations are at 0.6% for this year according to the Economic Development Ministry’s outlook. For the time being fundamental data is showing positive momentum. In particular, manufacturing and commodity production are increasing.
Currency-wise, the ruble has been strengthening for more than a year and we believe that this trend should continue over the year. Reloading the ruble's position is a good trade. Our target is 50 ruble for one dollar by year-end.