Daily Market Report - 25/02/2016


Increasing anxiety of the Brexit has driven sterling down to a new seven year low. We saw the pound fall to its lowest levels since February 2009 against the USD . We also saw GBPEUR drop by 0.58% .The pound tumbled as cabinet ministers clashed over the legal strength of Britain’s new deal with Europe.
IMF Chief Christine Lagarde state that “she fears uncertainty will hurt growth, at a time when the world economy is already fragile. She also expressed her fears that both Britain and Europe would suffer if the UK quits the EU. Analysts warned that a rise in the cost of imports following the collapse of GBP would lead to inflation increasing. This would result in the bank of England having to raise interest rates.
The analysts also warned that the ensuing turmoil would knock 1.5 percentage points off GDP growth in 2017, losing almost all the 2.3% growth rate estimated by the Bank of England expects should the status quo be maintained. “Our central case in the event of a vote for Brexit is that uncertainty grips the economy. This could take around 1.0-1.5 percentage points off the GDP growth rate by the second half of 2017. This would push our 2017 growth forecast, currently 2.3%, into the 0.8-1.3% range,” the analysts said.


Markit Economics' monthly flash services purchasing manager's index, a preliminary reading on the sector, fell into contraction for the first time in over two years. The tentative February index was reported yesterday at 49.8.
The consensus over the state of the economy had been that gains in the labour market and in consumer spending were propelling growth amid a downturn in financial markets. The services sector is essentially having its worst month since the recession. The only exception is when the government shutdown disrupted business activity in October 2013.
As a result the services sector makes an outsize contribution to US economic activity, about two-thirds a slowdown here is not good news for the rest of the picture. Many economists expect that economic activity measured by gross domestic product will rebound in the first quarter from the fourth.


European stocks declined for a second day as sliding oil prices stoked investor concern about global growth. Miners led the losses, taking their two-day decline to 9.5 percent, the most since August. BP and Royal Dutch Shell fell more than 2.8 percent as oil spent more of the day down after Iran dismissed a proposal by Saudi Arabia and Russia for producers to freeze output. European automakers and banks, the weakest groups this year, were also among the worst performers on Wednesday.

Key Announcements

09:30 – GBP: UK Gross domestic Product YOY expected to stay the same at 1.9%
13:30 – USD: US Durable Goods Orders (Jan) expected to decrease by -5% from 2.5%