This week may bring slightly better conditions than we have seen in recent weeks.
In the paper market, Chinese buyers are expected to return to the market for OCC after largely being out of it in the past few weeks.
Now Chinese New Year is out of the way, they will be buying for March. Don’t expect too much loosening of the strings though, as quotas remain tough, but at least they will be in the market.
However, domestic mills still seem to be full up, so will be picky and choosy about what they buy, if anything. This is also the case with European and other Asian destinations for OCC and other grades.
Quality remains key, and it retail tonnage of OCC in particular is attracting a premium at the moment.
In plastics, material is moving, particularly packaging grades as these are being helped by the PRN.
Many of the buyers that stocked up prior to Christmas and bought whatever they needed until they were full, now appear to have processed those inventories and so are buying again.
However, don’t expect a flood, and buyers are very much focusing on the best price and the best quality, and they have the advantage in the market.
The week ahead could be a bit volatile for sterling against the dollar in particular.
Manufacturing PMI’s are published on Thursday, which will suggest the health of global manufacturing and may affect the pound against both the dollar and the euro.
Today, Labour leader Jeremy Corbyn is expected to give a speech in which he will commit his party to remaining within a customs union following Brexit.
With Conservative MP Anna Soubry having put down an amendment in Parliament suggesting the UK stays within the customs union, it appears the arithmetic in the House of Commons could be easily enough to defeat the Government on this issue.
If defeated, Prime Minister Theresa May would be in an even more vulnerable position. Therefore, the market will be closely watching her speech on Friday where she will outline the agreed Cabinet position on Brexit from an away day at Chequers last week.
The market may have to weigh up the economic benefits of staying in the customs union, which would be a positive for the pound, against the political chaos if Theresa May sticks to the Government’s apparent preferred option of leaving both the single market and customs union.
This evening, Bank of England deputy governor financial stability Sir Jon Cunliffe will be giving a speech. The FX market will be looking at the speech to see if he has changed his position on interest rate rises.
He actually dissented against the rise that happened in November, but if he gives hints that he has changed his mind, this would be seen as a signal for those who expected a further interest rate rise in May, that it is likely to happen.
In the US, the new chairman of the Federal Reserve Jerome Powell is due to appear in front of the House of Representatives Financial Committee on Wednesday. Again, the market will be looking for any suggestions of what might happen with interest rates.
Overall, there is no clear pattern to where the pound is likely to head this week against the dollar, and it could as easily go up, down, or stay the same, or all three could happen within the week.
Against the euro, the pound has barely moved for six weeks, and again that looks like the most probable scenario for this week too, with little incentive for change unless the PMI situation looks much better or much worse than expected for either eurozone countries or the UK.
