14 Dec 2017 16:51:04 Dollar weakens pound looks well supported for now, Euro softer
Fed hikes rates 25bps to 1.5%, Dollar weakens as traders take profit. Inflation flat, markets await BoE/ECB
With a US rate rise heavily priced into the market there was no further momentum to kick start a dollar rally. The Fed is currently projecting 3 more hikes during 2018 and 2019, unchanged from its last forecast in Sept 17. Analysts suggest that this is the reason why the dollar came under pressure as some traders had begun to price in the possibility of 4 hikes alone in 2018. Anyone who was leaning that way headed for a quick exit. In a symbolic move over night China also raised rates by 5 bps.Theresa May is heading over to the EU summit after she lost a vote yesterday in the commons, which backed an amendment giving them a legal guarantee of a vote on the final Brexit deal struck with Brussels. Whilst normally the government losing a vote would be negative for sterling, this was seen as a positive as it reduces the risks of hard Brexit. UK Retail sales showed a 1.1% rise - this will be viewed with interest as it includes Black Friday and Cyber Monday sales figures.BoE MPC meeting gave us no suprises with a 9 to zero vote to leave rates as they are and markets were stable on teh news. The ECB showed no change as well, keeping interest rates steady at minus 0.4 and reaffirmed its existing monetary policy stance, after deciding in October to halve bond buys to€30mil euro per month from January 2018. Much of the euros gains have been on expectations of QE unwinding over coming months. The euro was a little weaker after Draghi made it clear he would reverse tapering if signs of deterioation re-emerge. Overall central bankers globally appear keen to normalise rates. As yet however inflation remains subdued and therefore the logic of raising rates is simply not there.
07 Dec 2017 11:33:39 Crucial time for Brexit talks keep pound subdued
UK has 48 hours to agree text on phase one of Brexit deal, markets await NFP
The two key factors for the rest of this week will be non-farm payrolls and how Theresa May plays her hand in relation to her phase one Brexit negotiations. Michel Barnier has made it clear she has just 48 hours left. There exists the rather remarkable situation that domestic political considerations; the disunity within her own government, is preventing a deal with the EU, rather than the EU themselves, who have decided to leave any decision from their direction in the hands of the Irish government. By all accounts an agreeable model had been found earlier this week, until it became clear either the DUP, or members of her own cabinet would leave her without the authority she needed to make a deal. Any news that some kind of compromise between everyone has been agreed will likely see the pound test resistance levels seen earlier this week. Conversely a no-deal will almost certainly hit the pound hard.Despite recent events the US dollar remains relatively stable - tomorrow we have non-farm payrolls, the biggest mover in the market. So expect plenty of volatility. The markets are pricing in around +190k more jobs. Even with such positive figures, there has been very little sign of inflation until now. Many experts believe it is just a matter of time and markets are pricing in 3-4 rate rises next year.This week we have seen more positive Eurozone data (PMIs were mid 50s on Tuesday and quarterly eurozone growth 0.6pct) and markets are pricing in a tapering of ECB QE. However by all accounts they are a long way from changes to interest rate policy. Draghi speaks later so we will expect volatilityaround 4pm.
10 Nov 2017 10:05:32 UK Manufacturing and Industrial Production rises 0.7%
Pound finds support after stronger than expected manufacturing and industrial output data
UK Manufacturing and industrial data expanded at 0.7% m/m, a powerful figure and well above 0.3% expected. Trade balance data also shows a slightly smaller than expected deficit of around£11bn. Both sets of data would reflect the weaker pound and are in line with projections by the Bank of England that the economy will re-balance in favour of UK manufacturing as a result of a weakened pound. Ironically, the effect of the better than expected data is that the pound has gained slightly on the news.Of course, with manufacturing being such a small part of the economy, even if the the news continues to be positive it will not dramatically off-set Brexit headwinds in other sectors. In this light a time table for EU trade negotiations remain pivotal for both the economy and the attractiveness ifthe pound.
It has been a very quiet week for data and currency markets have been fairly flat. However next week we have UK employment and wage growth data which are salient for BoE policy. At present markets are pricing in the very pessimistic prediction by the BoE that the MPC will decide to liftrates by no more than 25bps per year for the next three years.
On 28th November we will know who the next Fed Reserve chair will be. This is likely to be one of the key causes of market volatility this month so definitely one for the diary. From the Eurozone, markets are looking for hints in relation to QE tapering as economic fortunes continue to improve.
02 Nov 2017 10:53:28 Markets await first UK interest rate hike for 10 years.. will they or wont they
Currency markets are pretty uneventful ahead of todays announcement. The news at 12pm will be followed by a press conference at 12.30pm.
There is, and has been for some time, a dilemma and a trade-off here. Inflation is up to 3% but this is due to import prices and not economic activity, which since the Brexit vote has undoubtedly tailed off - although less than many had feared. Some might suggest letting inflation run until it subsides naturally over time and keeping interest rates low. However with inflation outpacing wage growth real incomes are falling, particularly amongst those who can least afford it. The pressure is on. On top of that there is a London/non-London differential. Will raising interest rates curtail inflation? Many commentators do not think so because the pound is weak for political rather than economic reasons. However, markets feel that a majority of MPC members now think the MPC will raise rates (80-90% pricing in a 25bps hike). However raising interest rates also has a negative effect on both economic activity and real incomes and this is the dilemma. Normally interest rates go up when growth and economic activity are creating inflation as a by product so any negative consequences of raising rates are off-set against growth and prosperity. There is enormous uncertainly about how Brexit negotiations will proceed and how the economy will respond. If the economy declines it will look like the MPC has made the wrong call and their credibility will be in tatters. Its a big dilemma.All aspects of today will be closely followed - the decision, even if priced in, could be eclipsed in importance by the accompanying statement and minutes. If there are hawkish remarks regarding future plans for raising rates the pound could rapidly gain value. Conversely, in the unlikely event that rates remain at 0.25% the pound is likely to drop.
25 Oct 2017 10:02:53 Pound up after above expectation GDP data
Monthly figure above expectations at 0.4%, annualised figure 1.5%
The expected figure was 0.3% and with the Bank of England MPC rate decision happening on November 2nd markets are pricing in an 80% chance of a reversal of last years 25bps cut. The annualised figure is revised from 1.4% to 1.5%.Going forward it could indicate a slow cyclical move similar the Feds over the next year, with maybe two or three hikes on the cards. This could well help the pound start to rise against the euro especially if we see progress from the Brexit talks. This latter factor is equally, if not more important for the pound. The pound is currently very undervalued as a result of political uncertainty, and markets will look for reasons to buy back into the pound if the reasons for its weakness dissipate. It is a big if. There has been little visible progress with Barnier suggesting yesterday that a Canada type trade deal was likely as the end result. This would spell big trouble for the City and the desire of UK based financial services firms to retain passporting rights into the eurozone.
For the past couple of weeks the major currency markets have been very range bound, moving no more than a cent or so. This morning the pound is up half a percent on the GDP news but gains look rather limited at present.
In relation to the dollar, markets are awaiting news in relation to the next Fed chair. It is still unclear how long Janet Yellen will remain in post and how hawkish the next chair willbe. The employment data, although showing a mixed picture last time indicates the the US is at full employment and thus inflation should start picking up. The last annualised growth figure was an impressive 3% and so everything points to inflation. This will keep the dollar well supported over the medium term despite the recent march by the euro. Once again, yesterdays eurozone PMI data all showed strong growth levels in the eurozone indicating that Mario Draghi could well talk up prospects of QE tapering at the next meeting.
05 Oct 2017 13:15:37 Pound falling back after string of weak figures and BoE comments
Lacklustre data and worries over soverign debt and stagnant Brexit negotiations weighing, as markets await NFP
Last Friday the latest official GDP figure for the UK came out at a rather disappointing 1.5%, against 1.7% expected (annual). The quarterly figure was confirmed at 0.3%.Since then the pound has been steadily declining. It has not been helped by poor construction PMI data Tuesday. Today we had a range of sterling negatives with worries emerging over the banks ability to trade after leaving the EU and comments from our own central bank regarding sovereign debt. TheUKs credit rating has been deteriorating this year and this is one of the causes. Also, political instability worries were not helped by the impression that Theresa Mays speech yesterdaywill do little to help her longevity as Prime Minister.The pound is down 2 cents against a basket of currencies, from its highs from last week.
Last night we had ECB minutes and a Federal Reserve meeting, but both were pretty low key in relation to market volatility. At the last meeting Janet Yellen made it clear she would suggest three more rate hikes next year as she believes inflation is coming down the tracks at some point and they wont want to be playing catch up. However inflation is yet to be seen. It is also unlikely Janet Yellen will still be in office then of course so who knows whether her successor will follow through.
Tomorrow wehave the big data event of the month, Non-Farm Payrolls. The US economy is still creating over 100k jobs a month, an impressive figure and one that leads Yellen and others to stick to their believe that inflation must arise at some point. If the figures disappoint however, the dollar will suffer.
20 Sep 2017 09:48:29 Pound rising after strong UK retail sales data
UK retail sales increase 2.8% well above 1.4% expected y/y, markets await Fed Reserve meeting later
It seems that despite worries that rising inflation will start hurting the appetite of the UK consumer to go out and spend, quite the opposite is happening. Some might suggest easing credit conditions may well be helping. In any case, the news indicates a reversal of the 25bps rate cut from last year will be firmly back on the table for the next BoE meeting on 2nd November (Thursday).The pound is up strongly across the board on todays news.
Later today we have the US Federal Reserve monthly meeting and markets will be looking for an admission by Janet Yellen that traditional theory (Phillips curve) is not happening as expected. With inflation nowhere to be seen despite continuing declines in official unemployment, it appears rate hiked could have been a little hasty. However the US economy is doing well with impressive 3% growth. At some point surely we must see inflation?
14 Sep 2017 13:19:07 Pound rising after BoE MPC meeting
Pound up well against everything after BoE MPC minutes make it clear Some withdrawal of stimulus likely appropriate in coming months
The pound is well up today after todays MPC meeting and rate announcement. Although only two members; Saunders and McCafferty, voted to raise rates (as per usual) the key words above have lead to a bounce for the pound.There was also mention that the market is too pessimistic over rate hikes and that Q3 economic data has been above expectations.
This week unemployment fell to a 43 year low and on Tuesday inflation posted a 2.9% annual figure, after a drop back to 2.8% the month before. Andy Haldane the chief economist has suggested that his limit for seeing through inflation is around the 3% level, before he sees the balance of risk fall in favour of a rate hike to counter inflation. Other members fear a rate rise could strangle the already anemic levels of growth in the economy this year. Despite inflation, arguably from the weak pound, wage growth remains at 2.1% a negative 0.8% against inflation.
Tomorrow we have US retail sales data out and that wraps it up for this week. There is concern that US rate hikes have been too hasty given the surprisingly low levels of wage growth and inflation. A poor result will substantiate this assertion.
08 Sep 2017 13:39:56 Dollar continues to decline
Pound at highest level since start of August and at top of annual ranges as euro marches onward
Already today, we have seen the pound move another cent higher against the dollar. It is not really about the pound of course. (Although we had some encouraging manufacturing and trade data today).The dollar is being influenced by the relative strength of the euro, predominately as an ongoing influence sapping its strength, rather than by any particular event. Not only is the eurozone data improving and growth levels exceeding expectations for 2017, the euro appears to be playing the role of safe haven as opposed to the traditional safe haven status of the dollar.
However there are more factors contributing to the dollars weakening;
Interest rate expectations are declining as a result of the shear absence of inflation in the US economy, something that had been driving monetary policy over the pond. The reversal in monetary policy divergence expectations between the US and the EU is being reflected in eurodollar, with it having moved 15 cents in favour of the euro over the last 6 months.
Also, doubts about the future Feds leadership and the US administration is feeding negative risk sentiment. Many of Donald Trumps spending plans look unlikely to pass Congress. Initially the dollar strengthened when it looked like Trump was going to spend like crazy to make America great again. However it really does look unlikely that either party will agree to these plans. Recently Republican John McCain wrote a scathing article about the President in the Washington post and It is quite clear that Trump is not popular among his own party let alone the Democrats.
Taking a longer term context, the dollar has been rather overvalued in the last few years, whereas the euro is ratherundervalued. The euro has been suffering from worries about unsustainable sovereign debt levels in southern European countries and the insolvency of their banks. But it looks like market sentiment is reversing now with the euro becoming the chosen safe haven, rather than the dollar.
24 Aug 2017 16:58:57 Dollar gains ahead of Jackson Hole economic policy meeting
The dollar has edged higher on Thursday after a politically driven sell off against the euro and yen this week. Investors are focusing on upcoming global central bankers gathering at the Jackson Hole Economic Policy Summit in Wyomming.
The collapse in expectations for tax cuts and other pro-growth moves by the U.S. Trump adminstration has weakend the Federal Reserves case for further rises in U.S. interest rates.Strong PMIs in Europe edged up slightly to 55.8 which continues to suggest that the economy is growing at a rate of 2.5% year on year. The PMIs helped the euro climb another +0.38% against the dollar on Wednesday, while sterling rallied +0.57%.
A better-than expected U.S. Initial jobless claims on Thursday helped the dollar maintain its gains. Data showed claims rose 2,000 to 234,000 after being seasonallly adjutsed for the week ended August 19.
Cable has been selling off since the start of the month on the back of disappointing inflation, poor commercial and retail performance and a floudering conservative rehash of Brexit negotiations.
The $1.28 handle is currently being tested and may break down further to previous lows around $1.26 unless the May Tories are able to reduce the political uncertainty around the many questions they face in agreeing a time frame and exit agreement with the European Union.
16 Aug 2017 10:39:30 UK Unemployment falls to 4.4%, wage growth rises to 2.1%
UK data steadies with wage growth up and unemployment down to 4.4%
The pound has found a bit of support after the latest crucial economic data from the UK shows that although the economy remains vulnerable, it appears to be holding fairly steady in the face of Brexit uncertainty.Wage growth has risen to from 2.1% from 1.9% y/y and unemployment fell to 4.4% y/y from 4.5% last month. Yesterday we had a mixed picture from UK inflation data but a fall in CPI from 2.7% to 2.6% will be a relief for policy makers at the BoE and the UK economy in general. The key worry at this time of uncertainty is that import driven inflation will lead to a growing disparity between wages and the cost of living, resulting in lower growth and living standards (negative net wage growth). The current figures show a reduction in the gap between inflation and wages and consequently implies less pressure on consumer demand. Tomorrow we have retail sales data, another key component in this analysis.
The MPC are somewhat split on the need to reverse last years interest rate cut. With lower inflation the appetite to reverse this cut has diminished by all except one member; Michael Saunders.He is relatively new to the MPC and has been calling for a rate rise because he is optimistic about the UK economy. He feels such low interest rates to be counter-productive and unnecessary. Stable UK economic data indicates he might be correct. Other, more dovish economists might say that withoutsuch low interest rates the picture would have been less favourable. However if the data remains like this for the rest of this year, then votes for a rate rise in 2018 may well increase. Any change in MPC voting will give a boost to the pound in the process.
Next month will be of crucial importance as politicians discuss the Brexit bill in Parliament, and eventually reach a cross party consensus on the UKs negotiating position. Markets and business are focused on retaining the best possible access into European markets and the likelihood of a workable arrangement.
04 Aug 2017 12:01:33 MPC Votes 6:2 in favour of holding monetary policy as it is.
Pound drops after MPC Votes 6:2 in favour of holding interest rates at 0.25% and 8:0 in favour of holding Gilt purchases at 425bn
Hints that a change of heart might be afoot at the BoE in the light of rising inflation, appears to have dissipated. The last CPI figure was 2.7%, lower than the feared 3% and no doubt to the relief of the MPC. Only two Hawks (Saunders and McCafferty) voted for an interest rate rise, down from 3 last time. Having said that the third was the ex-member Kirstin Forbes who has now been replaced.The currency has immediately weakened with markets disappointed that more members did not feel a reversal of last years rate cut following the Brexit vote, would be necessary to reduce the gap between wages and inflation.
In todays press conference Mark Carney makes reference to Brexit and the expectation of negotiations creating an environment of uncertainty.
He expects economic activity to remain subdued, with investment 20% below the level projected before the referendum and notes both depressed supply and demand.
He expects inflation to increase, and hit 3% in October as a result of the weak pound and be around this level for some time to come, falling back towards 2% over a 2-3 year time scale.
Sustained growth is a key concern for the BoE and a major component of GDP is consumer demand and real incomes. With consumer debt rising, savings declining, wages low and shop and energy prices rising, it does not bode well for a strong GDP performance this year. Despite good official levels of employment, wage growth is simply not rising.
Markets now look to the November meeting as a potential rate rise opportunity.
The status quo indicates continued weakness in the pound.
26 Jul 2017 15:01:33 UK GDP released at 0.3% Q2
UK GDP data released at 0.3% for Q2 as expected; offers some support for the pound but reflects a subdued UK economy in general
Earlier today the Q2 GDP figure for the UK was released in line with expectations at 0.3%. Q1 2017 was just 0.2% so a small improvement, but its going to take a big jump to reach the 1.7% for 2017 expected by both the Bank of England and IMF. 1.7% is already less than the original 2% expected at the end of last year.The pound has found some support across the board but with inflation data falling back to 2.7% from 2.9% recently, the pound has been struggling to keep up against most of the majors which once again have become expensive. The pound is down at 1.25 from 1.30 seen against the Swiss Franc back in May. It is a mixed picture with consumer spending holding up relatively well and although PMIs have been below expectations this year in general, they are still well in expansion territory. However PMI and GDP growth data are simply nowhere near the levels seen in the Eurozone now.
Last week the Eurocontinued its rise against the dollar after Mario Draghi gave a hint that he would review the ECB stimulus program after the summer recess. We should also start to get some clarity on the political situation in Europe after the summer recess, as the UK government prepares its great repeal bill andBrexit negotiators can formulate an official British negotiating position. Arguably at this stage its all rather a lot of hot air, and this uncertainty is clearly weighing on the pound, and wider investor sentiment. Already Deutsche and JP Morgan have recently pledged to move thousands of staff fromLondon, predicting that there will be an end to the crucial single market access that they require for certain functions.
Later today Janet Yellen will be speaking as the Fed give their latest monetary policy statement. It is also an interest rate decision, but there is very little likelihood of today be a day of rate rises in the US. In fact the markets have lowered their expectations of rate rises this year after continued very low inflation figures.
18 Jul 2017 15:44:50 Pound falters after drop in Inflation
CPI falls to 2.6%, ECB press conference and US unemployment data tomorrow
Contrary to what some policy makers had feared, inflation figures published today show inflation dropping back to 2.6% for June (annualised figure) from 2.9% in May. With wage growth at 2% real wages are still under pressure, but less so.As I have discussed in my reports recently, rising inflation is a key factor in a potential reversal of last years BoE decision to cut interest rates by 25bps, in response to the Brexit vote. The UK economy has started showing signs that inflation might be biting consumers, however it is far fromcertain that this is definitely happening. The last set of BRC retail sales data was a buoyant 1.2% m/m . A rise in inflation above 3% would have been difficult for policy makers to stomach, being a full 1% over target. They will be in an easier position with the latest data. It is worth noting consumer credit conditions are relatively loose by all accounts and this could well be the key factor behind consumer appetite.
The pound has been rising against a gently devaluing dollar and although remaining at a relatively good level the pound around is a cent down on the day. Questions remain overwhether Janet Yellens normalisation strategy has been over done. As yet worries about inflation are yet to be seen and markets have reduced the likelihood that a further interest rate hike will take place later this year. US interest rates now stand at 1.25%, yet inflation is running at below 1%.With improved business sentiment and economic data in the Eurozone, and following the removal of some political risk events, the euro has risen from 1.08 to 1.15 against the Dollar in just a few weeks. This is making any gains for the pound difficult and trades at its lowest level against the eurosince early October.
12 Jul 2017 10:21:01 Pound firms after improving employment and wage data
UK Unemployment falls from 4.6% to 4.5%, Quarterly wage growth rises from 1.9% to 2%
Sterling has found a little support from slightly better employment data today, as per subject line. There was a drop off in the afternoon, after Ben Broadbent suggested now is not the time for a rise in interest rates, and that the drop in real wages will eventually bring inflation under control through reduced consumer spending and that the BoE should hold their nerve - this somewhat contradicts what Mark Carney and his chief economist said recently, when they hinted that they could be in favour of unwinding the last cut of 25bps. The MPC decision will be on August 4th. The Euro has continued to rise to its highest level since May 2016 where briefly rose to 1.16. The data has been improving and Mario Draghi made it clear that he would not be extending his QE program at this stage. Data is light for the rest of the week, although there is inflation data from the US which could create volatility. We expect comments from central bankers to be of key interest in the near term. Janet Yellen will be speaking later today and markets will be looking for hints that she will be reducing the rate of interest rate normalisation next year. There are of course wider risk events on the horizon for the the UK, US and eurozone. Despite the upbeat rhetoric of late from the eurozone, it is worth remembering the north/south split and the state of the Italian banking system and sovereign financial solvency. Then from the US we have the ongoing saga about whether Trumps entourage colluded with elements in Russia, and on the UK side what sort of Brexit is going to emerge. Earlier today news emerged the the EU may well force JP Morgan to move thousands of jobs out of the UK. It may or may not be posturing ahead of negotiations but if it looks like companies based in the UK could lose passporting rights in the next few years, it will keep the pound under pressure. The pound is supported by the activities of the financial services sector in the UK.
07 Jul 2017 10:36:07 Pound drops off after raft of poor data
Poor trade, manufacturing and industrial data follows week of poor UK PMIs
This week we had the three sets of PMIs released, all showing a below expectation result. They are all showing a low-mid 50s number. It is worth remembering however that this is still expansion. PMIs are the key components for indicating what the quarterly GDP figures will look like and a recent estimate by the CEBRE was that GDP would undershoot the BoE expectation of 1.9% for the year, and come in at just 1.2%. It is a respected organisation and opinions such as this will keep the pound under pressure.Given the uncertainty surrounding the UK political situation and the painfully slow progress of the Brexit negotiations, it is remarkable that the figures are remaining as strong as they are. Today however, more signs the UK economy might be slowing appeared when manufacturing and industrial datacontracted by 0.2% and 0.1% respectively last month. Also, the UK trade deficit widened more than expected to 11.9bn and construction activity shrank by 1.2%.
Oneof the key threats to growth is inflation, now running at just under 3% pa. One of the main reasons for why the UK economy has performed well over the last year is that consumer spending has remained buoyant. However with growing inflation and low wage growth keeping real disposable incomes under pressure, economic activity is likely to deteriorate accordingly. It is worth noting that household debt is increasing and now runs at the same level as it did before the financial crisis in 2008. The hope is that the weak pound will be a shot in the arm for exporters. To an extent it already has been, but manufacturing and exports are a minor part of the overall economy. The BoE meets on August 4th. Chances of them reversing the rate cut from last year have risen recently after both Mark Carney and his chief economist showed signs that they are moving to a slightly more hawkish position in relation to interest rates. They have commented that the consequences of raising them maybe the lesser of two evils..
15 Jun 2017 12:38:36 BoE MPC votes 5:3 to hold rates
BoE MPC votes 5:3 to hold rates, big change in voting boosts sterling
Despite some pretty poor data recently, it appears that the risk of inflation has finally got too much for some members of the MPC.Todays change in voting surprises markets. Very few guessed that such a change of heart at the MPC might evolve. However earlier today we had retail sales post a depressing -1.2% indicating that inflation is starting to bite consumers.Yesterday we had a big gap between wages and inflation revealed. Although unemployment remains a respectable 4.6% according to official data, wages are growing at only 2.1%, down from 2.4%, and inflation on Tuesday posted a figure of 2.9%, leaving a 0.5% real wage contraction. It is feared that rising input inflation could fuel a recession. With recent terror attacks curbing tourism, and the last GDP figure coming out at just 0.3% for the quarter, the Bank of England will be very concerned that bad input driven inflation could get out of hand, and seem prepared to risk further consumer spending in order to curtail it. The worry now could be stagflation; low growth, rising inflation and thus rising interest rates. The pound is immediately around 0.8% stronger on the news. A rising pound could well help re-balance inflation expectations so perhaps this might lie behind the logic for addressing the medium term dangers that lie ahead.
07 Jun 2017 14:39:03 Markets calm prior to UK election, recent UK data deteriorating
Volatility Expected over Thursday and Friday as UK administration determined
With about 36 hours before we get some election results in, the pound is range bound. However, the election is very likely to create some significant volatility as markets wait to see what kind of administration the UK will have on Friday.Earlier this week, we had some pretty lacklustre consumer data and services PMI figures from the UK. Combined with the rather poor 0.3% GDP estimate for Q1 2017, the data points to a bit of a downturn for the UK as we bare down on the Brexit negotiations. Having said that, none of it is particularly catastrophic and time will tell if this trend continues. Next up on the data front we have UK manufacturing data released on Friday. A greater threat to the pound will flow from the general election. A hung parliament, coalition or a Labour win will likely be negative. The markets really want tosee a strong Conservative victory so any such result should in theory boost a pound weakened by recent uncertainty.
Over the pond the US is experiencing low wage growth and weak inflation, despite powerful jobs growth. This theme has been ongoing for some time and indicates far more slack in the US labour market than the data alone might suggest. The June Fed interest rate rise is heavily priced in but there is much more uncertainty further out with as little as 25% pricing in a rate hike later in the year, keeping the dollar under pressure.The euro has consequently gained greatly of late, on the back of both dollar jitters, and better news from the Eurozones. Tomorrow, we will have the ECB meeting for the month and it will be of great interest to see how Mario Draghi responds to better data and calmer political waters. Its not all plain sailing though as the Spanish bank Banca Popular has just been bought out by Santander having become insolvent, and last week the ECB and Italy agreed to bail out Monte dei Paschi.
02 Jun 2017 13:51:52 US NFP 131 versus 185 expected, dollar weakening
US non farm jobs data disappointing and poor wage growth could reduce likelu hood of further interest rate cuts this year
US NFP just came out at 138k against 181 expected, along with disappointing wage growth around 2.5% causing head ache for the Fed. With unemployment falling wage growth should be rising, but it is not. With an interest rate cut firmly priced in for June, another rate cut for later this year is only priced in at 40% and this may well drop further after these figures. Janet Yellen will be confronted with a bit of a dilemma, but its fair to say that with joblessness being just 4.3% (according to official figures), the US economy is still performing well over all.The euro is considerably stronger and there are some small gains for the pound against the dollar as a result of the data. Earlier this week robust Manufacturing PMI data (56.7) gave some support for the pound, however it is still trading lower than last week after the narrowing of the general election polls. The Conservatives appear to have just a 3 point lead now and there is no doubt we will see volatility between now and next Thursday on the back of polls. Data is playing second fiddle at this stage.
18 May 2017 09:50:24 Pound rising after better than expected retail sales
Pound reached 8 month high against the Dollar following robust employment data yesterday and better retail sales data today
The data is rather all over the place it seems. Retail sales data has bounced from +1.4% in February to -1.4% in March and now + 2.3% for April. Fears are growing that inflation (as mentioned earlier this week, 2.7%) will start to erode consumer demand in the economy and with a knock on effect for UK GDP this year, as wage growth declines in real terms (now at 2.4%). The BoE will have a headache if there is rising inflation along with slowing growth, so there may well be a sigh of relief today. 2017 is set to be a very precarious year for the UK economy. Yesterday UK unemployment and claimant count data were released and so far so good with a drop in unemployment to 4.6%. UK employment reached 74%, the highest since records began, although critics will point out that much of this relates to the changing nature of employment and questions remain as to whether many of these jobs are stable and good jobs.The pound has risen across the board, although it has been losing ground in recent days versus the Euro. The Euro has benefited from improving economic conditions across the Eurozone. The Euro has now risen above 1.11 on the Dollar, the first time since Donald Trump was elected in November. Next week we have German IFO and Eurozone PMIs out - all of which will be key indicators and havebeen steadily rising. Also on Wednesday we have the Fed meeting around 5pm GMT, so we can expect Dollar volatility then. On Thursday we have UK second estimate GDP for Q2 and Friday US durable goods orders and GDP.
16 May 2017 12:17:45 UK CPI rises to 2.7%
Pound losing strength as worries about UK growth follow rising input driven inflation
The pound has started deteriorating after inflation rose again, now showing an annual figure of 2.7%. It was predicted to rise to 2.6% from 2.3% last month. As predicted by the Bank of England and indeed many commentators, the effect of a weak pound is starting to gather some momentum. Normally a rise in inflation would be positive for the pound as it encourages policy makers to raise interest rates. However with the economy in such a precarious position inflation will deter consumers from spending which in turn could have a knock effect for confidence and GDP growth. As yet the benefits of a weak pound for manufacturing, tourism, exporters and UK businesses selling abroad more generally, although evident has been a mixed picture. It could take a while for the UK to re-balance and in the mean time the a UK economy heavily reliant on imports, could well take a knock. On Thursday we have UK retail sales data which will be an interesting barometer of how inflation is effecting consumer demand.The data from the Eurozone has been improving. Not only Eurozone PMIs but German ZEW has been very positive and again showed above expectations figures today. Today Eurozone GDP came out as expected at 0.5% Q/Q, indicating an annualised rate of 2% which is better than we have seen in recent years.On Thursday Mario Draghi from the ECB will be giving a press conference which may well make mention of QE tapering, something markets will be watching for closely.
Next up from the the US will be building permits and industrial production figures released later today. Thursday we have Philly Fed index and unemployment figures all of which can create volatility. There has been a suggestion that the Feds rate normalisation could have been a bit hasty. There is also a widely held assumption that Donald Trumps intention to spend will create inflation down the road. However he may well not get his spending plans through Congress. Markets are pricing in rate rises for 2018 but poor
11 May 2017 15:43:18 Pound down after BoE press conference
Pound faltering, markets will be watching for signs of higher inflation over coming months
The pound has taken a knock after the BoE revised down 2017 growth expectations to 1.9% from 2%, and 1.6% down from 1.7% for 2018. Despite what was a rather more positive press conference than usual (the BoE made the assumption that Brexit will be smooth - a rather optimistic assumption) markets responded negatively.With consumers feeling the pinch from prices rises, domestic growth is expected to be curtailed. The MPC have voted 7 to 1 in favour of keeping interest rates at 0.25% but there were indications it could easily have been 6 to 2. Maintaining low interest rates while inflation is rising is a highlyrisky strategy. The voting reflects the MPCs tolerance for inflation while prioritising growth. If they get it wrong, and inflation rises above wage growth then living standards will take a hit, consumers will stop spending and growth will stall, resulting in stagflation (stagnant growth and high inflation). However, the expectation is that wage growth will start to rise as a result of the improvements in global trading conditions over the next two years with the weak pound expected to offset downside risks to growth andglobal trading conditions assisting. Wages should in theory follow suit. Thus, interest rates may well rise sooner than expected. None of this optimism was reflected in markets and the pound was down, simply on the revision of growth forecasts
02 May 2017 15:55:13 UK PMI data bouyant
UK Manufacturing PMI rises but Q1 GDP dissapointing, markets await elections and central banks
On Friday UK GDP for Q1 2017 (preliminary) was released below expectations at 0.3%. The OECD, IMF and chancellor are predicting around 2% growth for the UK this year, same as 2016. There is a lot of uncertainty about this though of course, with the tumultuous political situation with the EU. This figure could well indicate a revision may be necessary and has already weighed on the pound since its release on Friday morning. Time will tell how the UK economy is effected by the exit from the EU, and growth rates may well be the best indicator for this. It will be interesting to see whether this rather lower figure is revised upwards or whether it is a sign of things to come.Its a muddled picture however. UK manufacturing PMI has just come out at impressively at 57.3 (50 being equilibrium), indicating that the prolonged weak pound and recovering eurozone could be feeding growth in the manufacturing sector. These figures are in line with the Bank of Englands prediction, that while political uncertainty creates obstacles, the weak pound may well compensate to some extent. The next BoE meeting is Thursday May 11th and it will be of great interest to see whether the meeting minutes indicate any change in sentiment and how far the MPC members look through inflation this year.
21 Apr 2017 15:08:08 UK retail sales fall 1.8% m/m but pound remains well supported
Signs that UK economy could be wavering in the face of growing inflation but remains strong as first round of french election looms
It has been an interesting week for the pound. Despite some very poor consumer data today it seems a change of sentiment overall is leading to a bit of a bounce back. According to Barclays the pound is 11% undervalued; one might infer the bias is in favour of a sterling recovery if we can find some political and macroeconomic stability as the year progresses.On Wednesday, Theresa Mays announcement that she would call a general election on June 8th caused a 2 percent rise in sterling across the board, and the pound appears to have found a firm foothold at current levels. Apparently Brexit negotiations will follow after what May hopes will be a landslide victory and provide the government with a clear mandate to get deals through Parliament without the risk that they could be scuppered, delayed or watered down by those on both sides of her party voting with opposition parties when it comes to making law following post Brexit deals. It is believed Brexit negotiations will start after the election.Perhaps surprisingly, there has been very little harm done by the data today which would indicate that political events are once again in the driving seat. On Sunday we have the French election first round, with all eyes viewing how well Le Pen does. The euro has been befitting from some better than expected PMI data over the last couple of days, but with Le Pens proportion of the vote growing, the euro has been on the back foot once again. Earlier this week Pierre Moscovici proclaimed that Le Pen winning would spell the end of the EU so the stakes for the euro could not be higher.Mark Carney gave little hint yesterday of whether he might review monetary policy and by all accounts nothing will change at this juncture. The next BoE meeting is May 11th, and preliminary UK GDP Q1 2017 is released next Friday.
30 Mar 2017 15:58:42 UK triggers Article 50
The pound has been finding good support over the last couple of days, perhaps predictably after the triggering of article 50 yesterday.
The pound has gained significantly after the US open this afternoon with some significant liquidity changing hands in its favour. The pound has clearly been heavily sold off in recent months, with markets pricing in a full or hard Brexit and a no compromise stance by Theresa May. It could well be that the position softens in due course but whether by intention or not the markets have been prepared for the worst. In the last couple of days Lloyds of London and JP Morgan have announced a personnel move away from the UK as a loss to passporting rights looks increasingly possible. Although this sort of thing should be sterling negative, it appears to be priced in already. Markets will be watching keenly to see how this trajectory unfolds.There has been very little data this week. US GDP today was in line at 2.1% (annualised) and tomorrow we have some UK GDP data likely to confirm 0.7% for 2016 final quarter. However next week we have PMI data - a key indicator that will give pointers as to whether both uncertainty and inflation has started taking a toll on the UK economy. The next MPC meeting will be crucial in getting an idea of whether inflation is enough of a concern for them to reverse last years 25bp rate cut from last Autumn.
The dollar is showing no signs of weakening significantly at present, with recent euro gainsbeing reversed in the last few days. There are multiple risk events on the horizon, but of note will be the ECBs likely tapering of its asset buying program. The effect of this, along with an unwillingness at the IMF to offer more support for struggling eurozone economies, could spell a toxic mix this year for the euro. However, economic data has been improving in France and Spain, and the German economy is growing strongly, so it may well be that if necessary, further bailouts can be arranged to maintain financial stability in the eurozone, even if politically difficult. More eurozone PMIs will be released next week.
23 Mar 2017 14:13:48 Pound up after strong retail sales growth for February
The Pound has been lifted once again, after surprisingly buoyant data, markets await Yellen and Obamacare vote
The Pound has gained this morning after the release of retail sales data showing that consumers remain unperturbed by talk of a potential economic slow down this year. The data flies in the face of what many commentators have been predicting - that GDP will take a hit as inflation hits wages and consumers feel the pinch. The month on month reading was 1.4pct and 3.5pct annually.At the last MPC meeting one member voted for a rise in interest rate rise. There is speculation that Ben Broadbent, who also spoke today, and others are also sympathetic and the BoE will be mindful to make sure interest rates between the UK and US do not deviate to far, especially when it now looks like last years cut may have (arguably) been a hasty decision. Markets are pricing in a more hawkish tone at the next BoE meeting.
Later today we have a Yellen will be speaking and markets will be looking for an indication of further dovishness. Markets have been heavily pricing in 3 rate rises in 2017 and further beyond this year but Yellen made it clear last time, that her view could change according to any signs that growth and employment start flattening over the course of this year.
We have Eurozone PMIs outtomorrow but in general we expect a quiet end to the week.
16 Mar 2017 15:30:45 Pound jumps after MPC member Forbes votes for rate rise
Pound up after BoE, Dollar down following Yellens rather dovish statement last night
Markets were rattled around midday after it was announced that MPC member Kristin Forbes voted for an interest rate rise at todays BoE Meeting. The UK is a way behind the US in relation to the normalisation of interest rate policy, but with inflation feeding into the economy and potentially driving down living standards, it indicates a shift in sentiment. The announcement also made it clear that only a relatively small increase in inflation could change their view over interest rate policy. Additionally, the announcement acknowledged that there had been relatively little evidence of a slowdown in the UK economy and they have also raised their Q1 2017 GDP forecast to 0.6pct.Yesterday, unemployment figures continued to show a drop, this time to the lowest level since 1975, something that can only drive inflation along with the weaker Pound.
The Dutch election has passed and with the right winger Geert Wilders coming in second behind the new Prime Minister Mark Rutte.Although Wilders share of the vote increased it was nothing like enough to even feature significantly in government.
Last night the US Fed reserve announced the expected rate rise, however with a dovish speech by Janet Yellen, the Euro had gained a cent against the Dollar this morning. Yellen made it clear that the plan was to raise rates two more times this year and cited headwinds to the US economy
03 Mar 2017 09:50:37 Pound weakening, Dollar gaining (again)
US unemployment falls, UK PMIs disappointing, budget next week, markets await Brexit
Yesterday, US unemployment reached a 44 year low according to official statistics, supporting Janet Yellens plan for a series of interest rate rises this year. It was well over a year ago when Yellen pledged to normalise interest rates in the US and there is no reason right now to think that by the end of this year there wont be an increasingly large space developing between European and US interest rates. Consequently something that will also be reflected in the relative strength of the currencies involved. Although growth and some other indicators have been a little on the weak side, Yellen would be treading a fine line if she delayed rate rises beyond the priced-in dates. The first rate hike of 2017 is expected this month.March is of course a crunch month this side of the pond, with the UK pledging to leave the European Union. This may well be priced in already but it will be interesting to see how the pound responds once the trigger is pulled. Recent data has been stable, indicating that people have been getting on with business as usual largely. However, interestingly there has been a drop of in consumer spending just recently and this may reflect price rises in the shops as the weak pound starts to filter through. Input prices are already running at 15% pa, so it is just a matter of time really. Growth inthe UK has been significantly influenced by consumer demand so if this continues to fall, it will almost certainly result in lower growth, as predicted by the BoE, IMF and others.
This morning we had services PMI come out which was down on expectations at 53.1 vs. 54.1. Construction was at 52 yesterday and manufacturing was down on expectations on Tuesday, at 54.
Next week we have the UK spring budget - many will be watching for non-monetary stimulus from Hammond, and Thursday we have an ECB meeting, always a cause for volatility. On Friday its US non-farm payrolls, the biggest market mover for USD.
15 Feb 2017 12:35:25 Pound falters despite lower than expected claimant count
Inflation and wage growth lower than expected, unemployment drops, but pound falls on expectations of continued loose monetary policy
The pound has dropped off this morning after weaker than expected wage growth figures were released today in addition to yesterdays lower than expected inflation data. Both indicators make it easier for policy makers at the Bank of England to maintain the very loose monetary policy currently in place consequently hurting the appeal of the pound.In contrast, the latest unemployment figures were much better than expected with UK unemployment falling by 7000 as well as a lower claimant count figure, with the total unemployment figure at 1.6m. According to a senior statistician at the ONS the UK is edging towards full employment. There are 31.84m people employed in the UK and 70pcnt of women for the first time in history.
Unfortunately for foreign exchange buyers, the pound immediately dropped about half a percent across the board on the news that wage growth was slowing to 2.6pcnt. Policy makers will be concerned that the gap betweenwage growth and inflation does not continue to narrow this year. Although employment is high, living standards are due to be squeezed if we see inflation gaining pace as a result if the weaker pound. MPC member Forbes recently stated that she predicts inflation running at 3pcnt by the end of 2017 which would eclipse wage growth at current levels.
In other news, the EU has approved the CETA trade deal with Canada. Elsewhere in the eurozone worries regarding the viability of maintaining Greece in the eurozone continue as reflected in their government bonds trading at over 9pcnt yield and its payments to lenders look unsustainable, all this despite major reforms since the financial crisis.
Last night the dollar gained after Janet Yellen suggested a rate hike was likely at the next Fed meeting in order to maintain the interest rate normalisation curve that she favors for this year, of three rate rises.
02 Feb 2017 11:32:58 BoE takes centre stage after Fed leaves rates unchanged
Sterling strong in to Super Thursday as markets await Mark Carneys speech
Sterling rallied against its major peers yesterday as UK Manufacturing data came out as expected at 55.9. Data however, has not been a driver of the currency markets of late so the move could have been down to expectations of the Article 50 bill sailing through parliament, which it duly did. This marked the end of what could have been another obstacle in the way of Theresa Mays planned hard Brexit, thus reducing uncertainty which in turn lends support to the pound.Last night also saw the Fed leave interest rates unchanged as expected. It did comment on improving consumer and business sentiment though and indeed, since Trumps election Wall Street have reacted positively and measures of business, investor and consumer sentiment have been strong. For the timebeing at least, Trumps America First policy chatter has seen stock market strength due to less risk aversion in the market which ultimately has weakened the dollar slightly, being a safe-haven currency.
To today, Super Thursday, where the Bank of England releases its projections for inflation and economic growth over the next 2 years at midday with Mark Carney speaking at half past. Since the Brexit vote, Carney and the Bank have been downbeat on the UK’s economic future despite continued positive data figures and 2016 being a year when the UK wasthe worlds fastest growing developed economy. A change in sentiment today from the Bank could see further support for the pound.Mario Draghi also speaks today at 12.15pm with growing pressure on the ECB to wind down its stimulus programme as the Eurozones economic recovery continues so analysts will look for any hints that the ECB is considering that course of action. 1.30pm sees US Unemployment Claims, although far too early to see if Trumps America First policy has had an impact just yet.
With volatility likely during a busy day on the calendar, it will be interesting to see where things settle come close of business.
27 Jan 2017 14:28:53 Pound stable at new higher levels going intoTrump meeting
Pound remains supported going into Trump, May meeting. UK GDP for Q4 2016 0.6%
Rather surprisingly, the pound took a dip yesterday after a decent UK GDP figure. The annual figure for 2016 is 2 percent showing that the Brexit vote has thus far had no discernible effect on the UKs economic performance. Although that sounds low, to get some perspective, German growth for 2016 was 1.9 percent, the US has just come in below expectations at 1.9 percent and the Euro area estimated at 1.6 percent. However, it appears to be largely down to consumer spending and the services sector with other sectors looking less impressive.With the prospect of higher inflation expectations this year, consumer demand may well take a dive, leading to a far lower result for 2017 even before the effect of leaving the EU on confidence. For the western world generally of course, these levels will fall far short of what is required to deflate or offset sovereign debt.The pound has not been trading on fundamentals in recent times however, with political events being very closely watched. Trump and May meet later today and it could well be a big market mover and whilst at this stage there is no possibility of detailed commitments, people will be reading betweenthe lines nonetheless. A positive sequence of free trade meetings for example could well make markets feel more confident about the future of the UK economy and how new partnerships could offset any damage to the UK economy by Brexit.
Earlier this week the Dow Jones reached 20,000 for the first time in its history. The FTSE is stable over 7000, reaching 7300 on January 13th, also an unprecedented high. Investors chasing yield can explain this to a certain extent but undoubtedly business sentiment is also riding high on the back of Trumps spending plans and low tax pledges.
20 Jan 2017 10:14:03 Pound drops after disappointing retail sales
UK December retail sales plummet 1.9 percent; world awaits Trump inauguration
The pound is dropping off again after very disappointing retail sales data this morning. The pound had stabilised recently after a range of data (high growth, low unemployment) showed the UK economy performing well and some encouraging speeches from Theresa May, particularly when indicating any Brexit deal would be put to Parliament. Last night George Soros was speaking and gave a very pessimistic view of the year ahead, labelling Trump an impostor and con-man. Perhaps of more salience for the UK and the pound is his view that despite a period of stability until now, the reality of the currency devaluing is that it will create inflation which in turn will start taking a toll on UK consumers, undermining the economy and confidence in Theresa Mays government. He predicts that the pain involved for both the UK and the EU will push each party to reach a compromise and predicts the UK rejoining the EU in some capacity in years to come. Earlier this week, annualised CPI came out at 1.6 percent, not something that will currently give policymakers any headaches. However, input inflation is running at around 15 percent y/y so the question is how this will feed in during 2017.Earlier this week we had some higher than expected inflation data from the US, running at 2.1 percent. The Fed will be mindful that any further increases will justify further interest rate rises. They have predicted three this year, something that will continue to support the dollar if likely to take place. Today we see the inauguration of Donald Trump. Markets, and indeed the world in general, will be keeping a close eye on how his rhetoric turns into reality, and whether he goes through with what looks like a protectionist and interventionist doctrine.Today we also had news that Chinese growth for Q4 2016 was 6.8 percent (annualized), bucking the trend of lower growth seen earlier last year. Stock markets have been trading on a high for some time now and this will offer yet more support and confide
13 Jan 2017 08:51:59 Dollar extends gains against sterling
Despite better than expected data from the UK this week, the pound has continued to fall against the dollar
There is no doubt that fundamentals are now firmly in the back seat when it comes to sterling, eclipsed by the multitude of political events arising, as we had expected, in early 2017.This week both retail sales data and manufacturing data were strong and yet sterlings decline was unimpeded.Theresa May speaks again on Tuesday next week, but last weekend had confirmed that single market access was not the priority in Brexit negotiations, contributing to the sterlings depreciation.
Yesterday both Donald Trump and Rex Tilerson (nominee for US Sec. of state) pledged to assert US foreign policy, with references to Mexico, China, Russia and Japan.
The dollar - already benefiting from fundamental data and interest rate expectations (3 rises potentially in 2017), is now also benefiting from increased risk aversion flows, and significantly weaker currency opponents in the euro and pound. Todays PPI data will be interesting as continued low inflation data may reduce interest rate rise expectations.
The next question is how much further can the pound fall against the dollar. Some analysts are predicting 1.17, or even lower in the near term although there is clearly strong support around the 1.20 level. All eyes will be on Theresa Mays speech on Tuesday and Mark Carneys next news conference around the BoE meeting on February 2nd.
05 Jan 2017 11:53:09 UK PMIs show big jump up for Q4 2016
UK PMIs all significantly above expectations; dollar weaker after Fed Minutes released
This week we have had all three UK PMI indicators released, showing above expectation rises. PMIs are key data pointing towards economic performance and consequently Bank of England calculations over monetary policy, something which has a direct effect on the strength of the pound. On Tuesday, manufacturing PMI posted 56.1 vs 53.3 expected, construction yesterday was 54.2 vs 52.6 and today services PMI was 56.2 vs 54.8. These positive figures bode well for Q4 2016 GDP, released January 26th. These figures were also the strongest of the year and come in complete contrast to warnings of the economy flat lining after the Brexit vote. Serial pessimist Mark Carney will be speaking after the next BoE decision on Thursday 2nd February.However, despite these results, the pound remains under pressure across the board, certainly down on where we were trading before Christmas. The pound is vulnerable toexternal factors at present - political uncertainty over Britains membership of the single market is ever present with the resignation of the governments chief negotiator, being salient this week.Its worth noting that Eurozone inflation has been picking up in addition to improving PMIs, stemming the euros decline against the dollar for the time being. In addition, the latest Federal Reserve minutes were far more dovish than expected and some commentators now feel that rather than the threerate rises predicted for 2017, it may only be one in reality. It will be interesting to see whether Trumps presidency leads to inflation there or whether it remains subdued.
06 Dec 2016 09:10:03 Renzi quits, UK Services PMI strong
Renzi quits after Italian referendum result, UK services PMI show significant expansion indicating powerful GDP for Q4 2016
The Pound has consolidated its gains from last week as UK PMI for services showed a better than expected 55.2 figure (50+ being expansion). With retail sales and the other PMIs showing strong figures, all eyes will be on Q4 GDP (late January) and whether it contrasts greatly from Mark Carneys forecasts. The Pound had improved towards the end of last week as risk appetite in markets led to a Dollar sell off. Gold is already well down after the decision by OPEC to limit production next year. Although the Euro had gently improved against the Dollar last week, the immediate reaction following Matteo Renzis defeat on Sunday night was a rather predictable fall of around 1.5%. However, over the course of the day it became clearer that there would be no snap election in Italy, and the Euro has recovered much of its losses. It is likely to be next spring before Italy has its election.There are deep problems for Italy at present and there will be pressure on the EU and its member states over the coming months unless economic performance improves generally. Although Spain is showing growth, unemployment levels are high and in France growth is painfully weak. President Hollandesapproval rating is as low as 4% and he will be the first President in history to not stand for re-election for a second term. Mario Draghi speaks on Thursday so we will have some volatility at this time. However, more important questions regarding the long term feasibility of the Euro for southern economies will dominate the next few months and almost certainly keep the Euro vulnerable to losses.
The big events left this year are the Bank of England and Fed Meetings on December 15th. Markets are pricing in a Fed rate rise but it could easily be delayed until next year. Non-farm payrolls werestrong once again on Friday but as yet there is no sign of wage rises feeding inflation in the US, and a degree of uncertainty exists following Trumps election victory.
01 Dec 2016 16:52:04 Pound up sharply as sentiment improves
The Pound is having a better time of it following OPEC agreement, strong manufacturing data and Brexit minster comments, markets await NFP and Italian Referendum
The Pound is starting to recover some of its lost ground after a raft of Sterling positives. Firstly, with the OPEC agreement yesterday pledging to reduce oil output - the first time since 2008, the risk environment has improved. Subdued oil prices are bad for global risk sentiment as so many countries rely on its revenue for their own growth and economic security. The Pound always benefits from a risk-on global trading environment.Earlier today we had Manufacturing PMI show a continuation of improvement following the Brexit vote and subsequent devaluation of the Pound. Although it was less than the 54.4, 53.9 is still well in expansion territory.Also today, David Davis (Brexit Minister) has suggested that continued contributions to the EU could be made to ensure continued access to the single market. The Pound is very sensitive to any suggestion that market access could be lost post-Brexit.
Later this week we will have a range of US data, namely non-farm payrolls. It is almost inconceivable that Yellen wont raise interest rates in December but if the data is weak it could help the Pound further by reducing the chance.
Sunday sees the Italian referendum with Renzis neck on the line with potential ramifications for Italys continuedparticipation in the Euro - any indication of defeat could well cause the Euro to weaken dramatically.
15 Nov 2016 15:22:54 Pound loses momentum after weaker than expected inflation data
Inflation remains weak, leaving room for further monetary policy intervention if required
Despite a punchy 4.6% rise in input prices, CPI and RPI are still very weak and the year on year figure came out at 0.9% versus 1% last month. It shows that currency weakness is not feeding consumer prices yet. With inflation running so low the BoE has plenty of room to ease further if required. At present, the pressure to do so is absent and questions remain over the efficacy of monetary policy at these levels anyway. Mark Carney has emphasised the role fiscal policy will play in fending off a downturn caused by Brexit uncertainty, citing the lack of control he has at present.Theresa May and Philip Hammond stated that they are in favour of an ideological adjustment in fiscal policy and so we can expect a demand boosting winter statement by Hammond on November 23rd. He has already put back the timetable on balancing the budget until at least 2020. Theresa May, speakingat the Lord Mayors banquet last night, made it clear that current free market economics needs reform in order to benefit everyone as well as businesses needing to be more accountable for the distribution of wealth.
Theresa Mays speech was rather drowned out by a leaked memo indicating that no planexisted for Brexit, something that No.10 has rejected. In any case the pound was trading lower from the start of the day and remains subdued.
Tomorrow we have UK unemployment data out and markets will be keeping a close eye on unemployment as an increase could provoke BoE to cut rates.
10 Nov 2016 17:12:17 Pound up following Trump victory
The day after Trump won the US Presidential election, markets have rallied and the pound has risen across the board as risk apetite returns
Following the surprisingly positive reaction to the Trump victory, the pound has had one of its best days of trading since the flash crash trading towards its highest levels since.With a significant proportion of Trumps speech emphasising a determination to increase capital expenditure and tackle the effect of cheap imports from China, many western stocks have rallied and gold has taken a big down turn. The expectation is for a more favourable environment for financial services, an attitude the UK should gain from. Also, with the Trump vote comes a significant reduction in the chances of a Fed rate hike in December, again a boost for market sentiment, hurting the dollar and helping the pound.
In addition, aggregate UK house prices have risen again and the UK trade deficit has narrowed. Recent UK data has shown that the Brexit vote appears to have had a negligible effect on the UK economy. New optimism has shown that sterling is perhaps rather over sold at current levels.
With the Italian election (December 4th) hanging over the euro, it remains under pressure and has lost ground against a stronger dollar. The dollar was expected to suffer under a Trump Victory but this has thus far not happened. In fact, it remains flat after Trumps acceptance speech pledging a policy of capital expenditure in the US. The loser appears to be the euro at present with a raft of uncertainty hanging over the Eurozone still.
03 Nov 2016 16:41:33 Pound rises after 3 pieces of good news
UK Services PMI much better than expected; 54.5 against 52.5 expected. BoE revises growth forecast, Parliament decides Brexit.
The services sector has posted a powerful 54.5 figure (month on month) indicating that (for now) the economy is shrugging off worries about Brexit.The three figures out this week have all been significantly positive with manufacturing posted at 54.3 and construction a 52.6. Earlier this month we had UK GDP for Q3 (preliminary figure) showing 0.5% growth as well.
The BoE minutes and the inflation report have rounded off the best performanceby the pound since August after the MPC lifted growth figures to 0.4% for Q4 2016 and inflation forecasted to rise to over 2% for 2017. Markets will be watching closely for any indications of a change of tack in relation to monetary policy. The court case around the legality of the governments intention to trigger Article 50 without Parliament helped boost the pound as well as it was ruled that Parliament must be able to vote on any Brexit deal, appearing to put the brakes on Brexit for the time being.
Fed minutes yesterday were a non-event - the Fed wont be doing anything until after the USgeneral election and markets are expecting a rate rise in December. Unless US unemployment figures change direction, the dollar will remain supported however, a Trump victory next week could well throw the plan off course.
The big data tomorrow is US non farm payrolls, always a market mover.
27 Oct 2016 10:45:08 UK GDP 0.5% Q3 2016 better than 0.3% forecasted, 2.3% y/y
Economy remains resilient as markets turn to US data and BoE meeting next week
According to the ONS, Brexit worries have so far been shrugged off by the economy as a whole with todays UK GDP figure of 0.5% marking the 15th month of consecutive growth - far better than the 0.3% expected. Scratching beneath the surface shows both services and consumer spending holding up well, in addition to the undoubted improvement in UK exports due to the weak pound, with any negative consequences of inflation yet to be seen. This of course may well change in the coming months, but it is business as usual at present. Data figures are as of yet proving pre-Brexit naysayers to be wrong with todays UK GBP figure eclipsing the figure in Q3 2015 and the annualised figure of 2.3% is still one the highest in the OECD.An improvement in the pound has so far been fairly muted. However, commentators are suggesting a further rate cut this year by the BoE is highly unlikely so all eyes will be on the MPC response next Thursday. On Tuesday afternoon, Mark Carney admitted that there were limits to how far he would look through inflation. With the fall in the pound, an overshoot could well create a headache for Mark Carneys trade off between stoking inflation and supporting growth.
The markets will now turn their attention to US data and the likelihood of an interest rise by the Fed in December, with unemployment claims and durable good orders out mid afternoon.
18 Oct 2016 10:35:42 UK consumer inflation rises moderately to 1% y/y
Inflation non-event, more data releases to come this week, along with ECB meeting
We had a raft of UK inflation data out today, with CPI rising to 1%, against 0.9% expected. This is still way below the BoE target of 2% and will not create any headaches for policy makers. Core CPI (excluding volatile elements such as fuel, energy, tobacco etc) rises to 1.5%; still of no great consequence. House price inflation on the other hand is running at over 8% still, despite some signs of weakness lately.The story could be very different by Christmas however, as the effects of the weak pound begin to crystalise. Companies who had hedged against currency volatility pre Brexit, will begin to run out of protection, and those who have thus far avoided raising prices will have to finally capitulate inorder to protect profit margins. Mark Carney has also made it clear that inflation is not a priority for him, so we have a long way to go until inflation starts to help the currency regain value via rising interest rate expectations.
Perhaps of more significance have been forecasts this week by HSBC and Goldman Sachs. The latter has predicted a further 7% depreciation for sterling based on their analysis of how political turmoil affects currencies in general. Although there is great uncertainty in the economy, they believe there is a good chance of depreciation as they feel that UK economicdata will worsen significantly from where it is now. HSBCs David Bloom points to the politically driven nature of sterling in the current climate, and that further declines against dollar to 1.20 and then on to 1.10 during 2017 are to be expected, and parity against the euro.
13 Oct 2016 10:38:16 Fed Reserve Minutes reveal members expect rate rise relatively soon
Markets pricing in December Fed hike shows disparity with rest of the world as China trade figures show significant slow down
Compounding the weakness of the Pound is the fact the US economy, powerfully adding jobs, is at what may now be considered full employment and consequently at an appropriate level for policy makers to take anti-inflationary measures. Markets are pricing in a rate rise to the tune of 67% according to Bloomberg, with 74% of economists surveyed by the Wall Street Journal believing a rate rise will happen in December. The 17 Fed officials are currently divided over the timing, yesterdays minutes showed three of the FOMC voters wanted a rate rise now. Markets are pricing in a 17% chance of a rate rise in November.The minutes had the effect of strengthening the Dollar further with the Pound trading at 1.2130 first thing today and Euro/Dollar trading at just a few pips over 1.10.
The story from China could not be more different. Chinese exports were down 10% y/y for September, and the Yuan currently tradesat a 6-year-low. This is a sign that global trade is falling and does not bode well for global growth projections or the ability of China to invest internally, something it has been keen to do as it evolves into an advanced economy. It could be inferred that political risk around the world is havingan impact on global economic confidence, which is something that will not help the Pound either.
There is relatively little data out this week and in any case the currency is being determined by political events rather than data (fundamentals) at present. Mark Carney is speaking later today (although not a BoE rate decision event) and may make mention of the currency. However, he has already said that the weakness of the Pound is part of the necessary re-balancing of the economy, and is unlikely to offer any words of support. All eyes will be on the deal the UK gets as it seeks toleave the EU, something in the hands of politicians, and this could take months to be revealed.
05 Oct 2016 09:57:08 UK Services PMI better than expected 52.6 versus forecasted 52.1
UK data continues to surprise to the upside but with no positive effect on the pound, markets await NFP and Carney
This week is PMI week, and today we had one of the most significant pieces of UK data released, UK services PMI coming in at 52.6 - indicating industry expansion. Yesterday, we had construction data show growth of 52.3 and on Monday we had manufacturing PMI at 55.4; undoubtedly showing the benefits of the weak pound. Further manufacturing data will be released later this week, hopefully continuing the positive data trend with aggregate PMI currently sitting at 53.7. Today, the IMF published its world economic outlook report and recognised that the Brexit vote has resulted in a soft landing (so far) predicting 1.8% growth in the UK this year, the best in the G7. However, the IMF expects just 1.1% growth in 2017 as Brexit uncertainty ramps up.Eurozone PMIs have been in the low 50s in general, although Spanish data has been surprisingly positive of late. Overall, cross sector growth in the eurozone remains poor.
The pound has taken no benefit from this weeks positive data, continuing to deteriorate in fact. All eyes will be on the nextBoE statement and rate decision on October 13th - a change in voting with regards to further monetary policy loosening will be closely watched as will be statements from Mark Carney. The chance of further cuts to interest rates by Christmas, will have reduced, but they key factor is Mark Carneys announcements and whether his everpresent dovish sentiment remains in the wake of continuing positive data.
03 Oct 2016 15:22:19 Pound falling further after comments by May and Hammond
Pound falling further as we await UK PMI data this week
Theresa May has made it clear that Article 50 will be triggered by the end of next March causing Sterling to fall today. She was speaking at the Conservative party conference over the weekend, where, significantly, Philip Hammond pointed towards long term economic turbulence in the wake of Brexit - which has also contributed to todays Sterling weakness. Without any clear detail on what the outcome of negotiations will look like, increased uncertainty will continue to undermine the attractiveness of the Pound. The Pound is now trading at levels not seen since the mid-1980s. In February 1985 the Pound reached 1.05 against the Dollar so it is fair to say anything is possible in currency markets, however, of course the economic circumstances were very different back then.Although it has dipped recently, the Pound has taken some support from a range of data since the referendum showing the overall performance of the UK has remained remarkably strong. This morning, UK manufacturing PMI data continued that trend coming in at a very strong figure of 55.4, anything over 50 signals industry expansion. Whilst this figure lent some support to the Pound for a short while, any small gains have since retraced as Brexit continues to be the main force impacting the British currency. Construction data is released Tuesday and of most significance, Services PMI comes on Wednesday. There is more UK manufacturing data on Thursday and US non-farm payrolls data Friday to round off the week.
29 Sep 2016 11:24:53 UK Inflation 0.6%, PPI 0.2%
UK Inflation surprisingly subdued as markets await unemployment data tomorrow and the BoE meeting on Thursday
Inflation data out today from the UK has come out lower than expected. Significantly it showed a PPI increase of just 0.2% m/m. Last month, input inflation was a whopping 3.3% giving the Bank of England quite a headache if such a trend were to continue as whilst the Bank are keen to loosen monetary policy as and when required, they do not want to trigger an inflation spiral. They currently have two reasons to loosen monetary policy further; they favour a weak Pound in order to re-balance the economy and close the trade deficit and are also keen to counter weak demand in the economy following the Brexit vote, which could hamper growth expectations for the next year or even trigger a recession.In addition CPI (consumer inflation) came out at a 0.6% annualized figure against 0.7% expected. The expectation is that inflation could be imported as the currency weakens. However, the two indicators released this morning are not suggesting that inflation is becoming a problem, just yet.
Latertoday Mario Draghi will be speaking again so expect some volatility off the back of that. We have UK unemployment figures out tomorrow and then the next big event will be the Bank of Englands interest rate decision on Thursday, along with the meeting minutes. Although it is very unlikely interest rates will be cut, the minutes will highlight Bank members current thinking and could well cause some volatility in the Pound as a result.
07 Sep 2016 16:05:55 Mark Carney testifies before treasury select committee
Carney takes credit for post-referendum economic stability, manufacturing output falls by 0.9%
For the past couple of hours Mark Carney has been testifying before Parliament in relation to inflation expectations. Carney has stated that he feels the balance between stimulus and keeping inflation on target has been met satisfactorily. In fact, mention of inflation has been rather drowned out by accusations from the treasury select committee, predictably, that his enormous use of QE was premature and perhaps unnecessary. Carneys response was to claim credit for stabilising the economy after the Brexit referendum, claiming he always expected a short term improvement in data. He stated that a recession is now less likely as a result of the actions by the BoE and reiterated that there is more scope to increase the package in future, despite questions about the benefits being tilted in favour of banks and asset holders rather than consumers, which he rejected.There have been no notable gains for the Pound or FTSE, so it has been a non-event so far as markets are concerned. Of greater importance today has been disappointing manufacturing output data and further falls in house prices. We also had an NIESCR GDP estimate for Q3 come out at 0.3%, rather more pessimistic than official readings which does tie in with Mark Carneys assessment that the economy is growing at half what it could otherwise have done.
05 Sep 2016 10:17:38 UK Services PMI shows unexpected growth of 52.9 for August
Another indication that post Brexit referendum worries appear, so far at least, to be unfounded. Markets await Carneys response.
The pound has found further support following yet another piece of surprisingly positive UK data. Services PMI, reflecting the largest sector in the UK, has just posed an expansion figure of 52.9 against 50 expected. 50 being zero growth, under 50 being contraction.The key question is how the bank of England and namely Governor Carney reacts, something we will know tomorrow morning.There will be ISM manufacturing data out tomorrow from the US too and this is significant. On Friday non-farm payrolls came out rather disappointingly at +150k. A strong figure would have sealed it for a rate rise in the US before Christmas but if we see more poor data then Yellen may well delaythat plan.
Earlier today we had a raft of Eurozone PMIs but they offered no big surprises, although Spanish composite PMI is now running at 56. The Spanish economy is showing good signs of recovery, and bond yields in Spain are falling as a result. Time will tell if Spain is going to find a sustainable run of good economic performance.
02 Sep 2016 10:14:11 Manufacturing and Construction PMIs suprise to the upside
UK PMI data surprisingly good, non farm payrolls later, services PMI out Monday, Carney speaks Tuesday
Although the pound has been lifted recently by encouraging data, there has been no significant change with the pound remaining over 10% down on its pre-referendum levels.Earlier today we had better than expected Construction PMI data, out at 49.2 versus 46.6 expected (under 50 represents contraction). Yesterday we had an enormous rise in Manufacturing PMI from 48.3 for July to 53.3 for August. It will be interesting to see if these levels remain stable next monthas well.
Of key importance next week will be services PMI out on Monday morning, and on Tuesday morning Mark Carney will be giving his inflation report hearings to Parliament with plenty of news expected in the aftermath of their return from summer recess. It may well be that markets are waiting for Mark Carney and the new Cabinet to act decisively and fast, in order to provide reassurance and ultimately avoid what the Bank of England have feared could be a big dip in growth over the coming months.
Later today we have the latest non-farm payrolls data out (1.30pm). We have had some mixed readings from the US of late with manufacturing PMI worse than expected yesterday, at 49.4 for example. However, Yellen made it clear when she last spoke that the conditions were suitable for a rate rise this year and a strong jobs report will keep the dollar strong.
26 Aug 2016 10:18:25 UK GDP in line with expectations 0.6%
UK GDP (Q3 second estimate) has just come out as expected along with business investment showing steady quaterley growth, markets are awaiting Janet Yellen speaking later
After a rather non-eventful week, UK GDP has just come out as expected at 0.6%, offering more evidence that so far its business as usual, post Brexit referendum. In other related data, quarterly business investment was up 0.5% against an expected -0.9%.Although Its too early to say these positive trends are going to continue of course, the news should offer support for the pound at least at current levels. The latter figure can, in part at least, be attributable to a weaker pound, making foreign investment in the UK more attractive and indeed the increase in tourism this summer will also be having a positive effect.
Later today, and perhaps more significantly, Janet Yellen speaks from Jackson Hole. The markets are awaiting any hint that further interest rate hikes could be delayed while the deviating paths between the US and global economies, take shape, and indeed the ramifications of Brexit uncertainty become clearer. It is notable, that French and Japanese growth rates are non-existent (among others), but whether Janet Yellen prioritises the normalisation of interest rates over global economic worries, will be of great interest to markets.
15 Aug 2016 15:44:08 Pound continues to struggle as a week of post-referendum data looms
Data generally in line with expectations last week but US consumer data unexpectedly poor. Pound suffers as key week lies ahead
It appears that things are playing out as envisaged post-referendum. Last Tuesday we had manufacturing production data from the UK show a -0.3% figure slight better than the -0.6% from previous month. This may be due to the beneficial effect of a weak Pound on exporting manufacturers. There is nothing positive to suggest the Bank of Englands prediction of zero interest rates will be avoided by end of the year with data like this. However, we did have a somewhat optimistic NIESCR GDP prediction of 0.3% for Q3 2016 and both datasets were reassuring in that they were far from disastrous. Industrial production in fact rose by 0.1%. House price data is showing a slight slowdown but not exactly a total collapse either.This week we have more data - perhaps of greater significance. Tomorrow is all about Inflation, with CPI predicted to be 0.5% m/m - a good indication of consumer behaviour post-vote. Average earnings and unemployment data are out Wednesday and then retail sales data on Thursday. Unemployment is currently 4.9% and the question is whether it will remain at these very low levels. BoE have made it clear their priority is protecting jobs and a bad figure could push them towards even great levels of asset purchasing (QE) between now and Christmas.
Outside the UK, there has been very little good news either. Extraordinarily, the US posted a raft of bad consumer data on Friday, bucking the trend. Inflation and retail sales were significantly below expectations and in contraction territory. German quarterly GDP rose 0.4% and inflation is running at the expected 0.3%. French industrial production dropped 0.8% following a 0% GDP figure from the week before. Tomorrow, we have German ZEW business sentiment, a closely watched indicator which posted a very poor figure last month. It could easily weaken the Euro again this month. We also have Fed reserve minutes published on Wednesday and thenThursday Philly Fed and Unemployment figures.
09 Aug 2016 17:08:21 Pound extends losses after McCafferty turns dovish
Pound still suffering and data remains mixed with buoyant retail sales but poor manufacturing and enlarged trade deficit for June
The Pound has fallen to below 1.30 on the Dollar after the MPC member, normally a hawk, made it clear rates could be cut further, with QE extended further. BoE Bond purchases have already been implemented this week, keeping sterling from recovering despite improvements in global markets. On Friday we had another storming figure from the US with the labour market showing 255k more jobs added to non-farm payrolls. It is clear that either side of the pond we have different patterns at present and this is shown in the divergent currency performances.Earlier today we had three data releases from the UK of significance; firstly BRC retail sales showing a positive 1% growth figure for July, however it must be noted that it is a year-on-year figure, and secondly, the latest manufacturing production figure m/m showed a contraction of 0.3%, worse than expected but not as bad as the 0.6% contraction in June. In any case it wont help the Pound and will disappoint policymakers who had hoped for a weak Pound to offset a deterioration in other sectors. In fact, the UKs trade balance worsened in June to 12.4bn according to figures released today.Data is light this week but Euro releases will ramp up Thursday and Friday, then on Friday we have a raft of US consumer data.
09 Aug 2016 12:28:48 Non Farm Payrolls reads 255,000
Euro and Pound falling against the Dollar, UK manufacturing data out next Tuesday
The gap between the economic fortunes of America and Europe has widened yet again today, with employment data, seasonally adjusted, showing a big jump to 255,000 month on month.The biggest data release of the month had the effect of immediately increasing the value of the Dollar by around a cent against the Euro and Pound.
It would indicate that we will almost certainly see another US rate hike, if not two this year, bad news for Sterling and Euro alike.
Next week promises to be light on data from the Eurozone. The next ECB meeting is September 8th and will be the one to watch. There will be a raft of data out in the final week of August but it is unlikely to offer anything dramatically different. However, the next Fed reserve information will be next Wednesday with the publication of the minutes along with Philly Fed index, both of which can move the market. Tuesday sees US Inflation data and unemployment figures out on Thursday.
In the UK there will be manufacturing, industrial and retail sales data , along with preliminary GDP data, which will be closely followed for signs of post-referendum doom.
04 Aug 2016 14:28:21 BoE Cut rates as predicted by 25bps, with zero by Christmas expected
Growth for 2017 lowered to 0.8%, QE extended for both Government and Corporate sectors.
BoE have cut rates, as expected by 25bps to 0.25%. They have also increased QE by 60bn Government gilt edge bonds, and 10bn corporate bonds (over 18 months). There is also a new 100bn loan facility for banks. Could more corporate bond purchases be on the cards? There was a 6:3 split on QE buying gilts and 9:1 split on corporate bonds so perhaps this is the new approach. Wider support for business looks on the cards with 150 corporations in line for help.The message from BoE is that they can only do so much. Negative rates are not out of the question but not favorable. Yes, they can happen next year. They have negative consequences and have not been successful in other examples so should be avoided. In a context of low inflation however, everything is on the table. Asset purchases in various sectors are desirable, both government and private sector. BoE target is currently 2% inflation but on 2-3 year horizon fear an overshoot to 2.4% (predicted as a result of the weak pound).If data comes in as expected then a fall to zero on rates looks inevitable (according to the MPC and markets) by end of year. The prediction is a growth rate of just 0.1% for Q2 2016. Growth predictions for 2017 now 0.8% down from 2.3% predicted previously.Fiscal and Trade policy are what matters most now, as it is this that will stimulate the economy. They key thing is get money into pockets and this relies on the budget, changes to cuts and spending measures.
25 Jul 2016 15:34:01 Pound struggling after poor services PMI
Fridays PMI was worse than expected and could signal a dreadful GDP result for Q3. Global confidence declines as shown in oil price drop
Given Fridays services PMI figure of 47.4, it is impressive that the pound has not fallen further. Although it recovered to 1.35 against the dollar quite quickly after the referendum, this is the first piece of data released reflecting the post referendum UK, and it is exactly the sort of figure that leads the Bank of England to consider loosening monetary conditions. It dropped around 3 cents but it remains fairly stable above 1.30. The pound has been as low as 1.27 and the fact it has not moved further may well reflect some uncertainty around the expected (and priced in) 25bps cut to interest rates and indeed the£100bn or so QE expected to be announced on August 4th. Firstly the anticipated carnage in markets has not really been seen, with a weak pound helping investment yield in the FTSE 100 and 250. In fact the FTSE is now at an 11 month high. Secondly doubts remain as to whether a rate cut will make any difference to confidence at all (as rates are already negligible) and indeed BoE need to be conscious that going through with further QE, without the data to support such a move, could hammer the pound further, consequently squeezing importers far more than is desirable. BoE also need to be conscious that they cannot risk an inflation spiral arising from a weak pound so will want to keep an eye on it over coming months, and aim to strike the right balance when loosening the money supply.There is plenty of European PMI data out this week and this will reflect Julys sentiment across the Eurozone, following the vote in June. On Wednesday we have the key UK data with preliminary GDP for Q2. Later that day there will be a Fed Reserve statement, hopefully giving a clear indication on policy towards rate rises this year over the pond. The deviation in policy either side may well be set to increase. Also, as a barometer of global confidence, oil is a key indicator. The prices have been dropping over past 2 weeks, as inventories are set to increase.
21 Jul 2016 17:34:44 Pound remains in range, with varying data, ECB offers no changes
Pound remains in ranges after varying data, with Unemployment down, retail sales down and public borrowing better than expected. ECB offers no change.
There has been plenty of data this week, none of which has made much difference to the pound. The first significant data was UK Inflation rising ever so slightly to 0.5% , not enough to boost the pound or give the MPC any headaches about monetary easing. Uemployment fell again to an 11 year low of 4.9% and today the public borrowing figures were much lower than expected at 7.3bn vs 9.3bn. Retail sales were a bit off in June at -0.9% m/m and temporarily hit sterling but in no way as significantly as would be the case should one of the MPC members offer their opinion. The next BoE interest rate decision is August 4th and so its hard to see where we will get any movement between now and then. The first data that could have been affected by the referendum result is out tomorrow with Manufacturing and Services PMI (preliminary) for July.Today the ECB reiterated what the last MPC minutes said last week, that no decisions were being made until there is a better understanding of how the referendum result was affecting confidence.
All the data from the US recently has been positive, and this along with risk aversion, is helping boost the dollar. It is quite possible we will see more interest rate rises, and so expect that to continue for now. There will be a Fed statement next Wednesday so thats the one to watch.
19 Jul 2016 13:56:25 Euro drops but Sterling fails to capitalise
Euro falls as German business sentiment posts dreadful number, pound fails to move despite CPI increasing
The euro and the pound have continued to drop today despite better than expected data from the UK. CPI came out at 0.5% against 0.4% expected, but clearly not enough to suggest the Bank of England will change course over its rumored intention to boost the money supply next month. Having said that we have had some diverging comments lately, with Martin Weale making it clear that no decision will be taken without supporting Brexit data of which we have so far had none. RPI was up from 1.4 to 1.6% and Purchasing price Index (input inflation) was double from 0.9% to 1.8%. None of which helped the pound. Earlier today it was announced that there would be no trigger of article 50 this year.The euro weakened today against the dollar after German ZEW business sentiment (key Eurozone data relating to confidence) dropped massively to minus 6.9. The reading was 19.2 last time and only expected to half from there this month. This is the last thing the Eurozone needs and may well show theeffects of Brexit worries on German business sentiment already.
The pound is looking reasonably stable in current ranges, around 1.30 on the dollar and just under 1.20 on the euro and with holiday season upon us, and no Brexit data out until August things look settled. We have Unemployment figures from the Uk out tomorrow, and although its been showing strong figures for months its effect will undoubtedly be limited in the current context. UK Manufacturing data is out Friday along with Services PMI, but dont expect any great moves.
Thursday will be the ECB meeting, always a cause of volatility, and also the Philly Fed manufacturing index from the US. Last week showed a raft of positive data from the US and if this is also positive then it going top look like another Fed reserve rate hike is very much on the cards. Such a policy divergence could only exacerbate the problems for botheuro and pound this year.
14 Jul 2016 17:18:25 BoE Hold rates unexpectedly
The Bank of England has defied the market makers and held rates at 0.5pcnt, no further QE yet either, as they await post Brexit data
The pound has steadily increased in value today after the Bank of England unexpectedly kept interest rates on hold at 0.5% and did not announce a new quantitative easing programme. Market makers had priced in an 80% chance of an interest rate cut. However, gains were muted after the meeting minutes made it clear the committee believes easing will be necessary in August, as the economic outlook will have worsened (as demand in the economy drops), and considering the trade-off between stimulating growth while keeping inflation at target. The combination of monetary loosening and a weaker pound, will be the prospect of above target inflation.Although still way down on levels seen before the referendum, the pound has been making up some lost ground. According to the MPC markets have continued to function effectively following the Brexit referendum, and that without any evidence to support the prediction of pending economic deterioration, there was no reason to act at this stage. The first post Brexit referendum data will start coming in during August. We should also note that with the summer holiday season upon us, that dramatic changes in trends would seem unlikely until late August.
The BoE Quarterly Inflation report is on August 4th.
13 Jul 2016 16:22:09 A Positive Turn for the Pound?
The Pound appears to have bottomed out, as markets adjust to our new UK prime minister Theresa May.
In currency markets sterling has gained 3 cents on the dollar and two cents on the Euro in the last 48 hours, after Angela Leadstrom dropped out of the leadership race and David Cameron agreed to change the reins making way for Theresa May.It is clear that both business and politicians were agreed that there was a pressing need to get something sorted well before the original September 9th deadline for electing a new leader, and to get it done before the summer recess. As such we expect sterling to trade in ranges over the course of the summer break. Much of Europe will be on holiday from next week until late August now.Despite this, the disarray in the labour party, and indeed the uncertainty over how a new relationship with the EU will unfold will undoubtedly leave sterling vulnerable. Moreover Mark Carney has made it clear that all options are on the table, meaning a new QE program is being considered and almost certainly some further reductions in interest rates. The latter appears to have been priced into the pound already so a less dovish decision and conference statement could help the pound recover more losses. More clarity will be provided in the BOEs rate decision on Thursday and markets will likely move based on how many members have voted for a rate cut.
In Europe, Italian banks are deep in bad debt, and creditors (Italian retail sector generally) are in line to lose what they thought were safe bonds. Ultimately the ECB will have to support the banks should they look to be in serious trouble. The Italian economy is now 8% smaller than it was before the financial crisis. It has simply never properly recovered and the banks are bearing the brunt. In October Italy is having a constitutional referendum designed to facilitate the streamlining of law making; However if the President losesthis it could trigger new elections and further instability both in Italy and across Europe.
20 Jun 2016 15:50:20 New polls give boost for the Pound, oil back over $50
A number of events over the last few hours and days appear to have helped new polls show a move back in favour of the Remain campaign, consequently boosting risk appetite and the Pound.
Over the weekend a Yougov poll showed a 2 point lead for Leave - 44 vs 42pct , down 5 since the last poll. Opinium (previously showing Leave well in control) is now showing a tie at 44. A recent BMG telephone polls showed a 46 vs 43 lead for Remain. Betfair has reduced the odds of Remain further, to 72 pcnt.Also, Conservative peer Baroness Warsi has attacked Michael Gove, accusing him of lying during his campaign to Leave the EU. Criticising the recent UKIP Breaking point poster, she made it clear she wnated to be disassociated from the Leave campaign,
The result of all of this has been a surge in the Pound - currently up almost 5 cents against the Dollar since last Thursday and 3 cents against the Euro, Aussie and Canadian dollar, Swiss Franc and climbing across the board generally. The FTSE and other markets have risen and Brent Crude is back over $50.
Later today, Jeremy Corbyn will be answering questions on Sky in relation to his campaign for Remain. Janet Yellen will be speaking both tomorrow and on Wednesday, hopefully offering more details on her forecasts for rate rises this year.
Please let us know if you would like us to monitor the market on your behalf over this volatile time period.
16 Jun 2016 18:01:09 The pound fluctuates on the back of the polls
A volatile day as we draw closer to the EU Referendum.
A busy two days for the Pound, yesterday we saw one of the most volatile days in the currency markets since the 2008 crash. Yesterday saw the UKs unemployment rate drop from 5.1 per cent down to 5 per cent along with a change in average earnings up by 0.1. Last night we had the US FED Reserve meeting and the overall tone of the meeting was dovish. This was by no means a surprise following the worst non-farm payroll numbers since September 2015 along with inconsistency in both US and world growth. The key point to take from the meeting was the comments regarding one further rate hike expected this year down from three previously.Today has seen further volatility with GBP/USD fluctuating between 1.4011 to 1.4204 and GBP/EUR moving between 1.2495 to 1.2658. The fluctuations have primarily been driven by the latest opinion polls heavily in favour of the leave side as opposed to the economic data. The latest poll showed a 7 point lead for the leave side. In other news the latest BoE report remained the same at 9-0 against an interest rate hike in the UK followed by strong comments by Mark Carney regarding the financial implications of Brexit. In the coming days we have further polls to be released on the 18th and 22nd of the month, likely to cause increased volatility in the markets.
14 Jun 2016 13:39:45 Yougov posts 7 point lead for remain, German bonds go negative
More polls showing Brexiteers in charge in the polls, risk aversion spreads with bond yeilds plummetting
Earlier today, we had three more polls out showing a growing trend towards Brexit, despite a stream of voices warning against it.Notably, the latest YouGov poll showed a lead of 7 points, a 6 point swing from the previous and the ICM (by the Guardian) poll showed a 6 point lead. This comes despite speeches in support of Remain by Jeremy Corbyn, Gordon Brown, Tony Blair and John Major in recent days. Earlier today, The Sun came out in favour of the Leave campaign. The FTSE, and other stock markets, have dropped off heavily and indeed global risk appetite in general has continued to take a hit in response to what are now very tangible fears about a Brexit, and its ramifications for global economic stability. The Euro has fallen by over a cent in the last day and German 10 year bonds now trade at negative rates, something never seen before, and reflecting a deep sense of risk aversion. This will not be helping Mario Draghis plans to stimulate growth in the Eurozone.
In terms of data today CPI was a non-event, remaining at 0.3pcnt mm. US retail sales came out just above expectations at 0.5pcnt mm. Next up are UK unemployment figures, due tomorrow morning. The UK currently has the fourth lowest level of unemployment in the EU and it will be a closely observed figure tomorrow alongside average earnings. However, nothing is trumping the polls in terms of significance, at present.
14 Jun 2016 13:01:32 Pound falling as Brexit looms, volatile week ahead
More polls show a movement towards a Brexit, risk aversion clobbers both FTSE and global markets
Two more polls have been released over the weekend showing a vote Leave.eu taking charge. However its worth noting that the questions involved here and whether these reflect a true picture. Firstly a poll by Orb suggested that 53pcnt versus 47pcnt would vote to leave, however there is no accommodation for undecided voters here. There was also a poll by Opinium commissioned by the Bruges Group that asked whether voters would prefer a purely free trade agreement, or retain status quo, and this came out at 53pcnt in favour of the former versus 33pcnt, with the rest undecided. Clearly this is not what is on offer and so may not be a true reflection.The pound had been doing well early last week after manufacturing and industrial production data showed a rise of 2.3 and 2.0 mm respectively, GDP estimated data showed a steady 0.5pcnt for Q2 and the UK trade deficit narrowed. UK construction output showed a rise of 2.5pcnt mm too. However the pound began to tail off towards the end of the week after stock markets across the world tumbled. WTI Crude Oil fell 3pcnt, and Bond yields also dropped as International fears over a possible Brexit lead to a loss of global risk appetite. This clearly shows what little difference good market data makes against global risk sentiment at present, in respect of the pound.This week we have plenty of data out from Tuesday onwards so please let me know if you would like me to monitor the market for you at these volatile times. Tomorrow we have UK inflation data and USD retail sales data. On Wednesday we have UK employment data and a raft of news and data from the US including the Fed Reserve Interest rate decision and press conference. On Thursday we have the UK MPC meeting, rate decision and press conference and later US inflation, unemployment and business sentiment index.
02 Jun 2016 11:43:31 Sterling tumbles on the latest Brexit polls.
Sterling takes a hit on the back or the latest Brexit polls as we look forward the ECB meeting this afternoon.
The Pound is under increasing pressure as a pre-referendum poll, conducted by the Guardian and ICM, was released yesterday and suggested that there has been a swing in favour of the leave side 52 per cent to 48 per cent. This is a major swing from the previous of 54 to 42 in favour of remain. Subsequently, the Pound has dropped nearly 2 per cent against all major pairs.This morning saw the UKs construction PMI fall from 52 to 51.2, the first fall in British construction orders in more than three years, as concern about a June 23 referendum on whether Britain should remain a member of the EU prompted companies to put off new projects.
The focus for today will solely be on the ECB Interest rate decision in Austria and although no change is expected in monetary policy, volatility is expected. Draghi is expected to raise questions regarding Greeces debt situation after their latest deal with creditors was agreed. Lastly, Draghi is also expected to mention hisconcerns over the latest polls over Britain’s EU stance and the increasing likelihood of a Brexit.
31 May 2016 12:27:05 Brexit and US Interest Rate decision in focus
GBP suffers at month-end but larger global events to dictate short-term market movements
GBP has taken a downturn today, hurt by month-end selling and a new opinion poll showing the remain campaigns lead in the forthcoming referendum diminishing. A Daily Telegraph poll today showed remain at 51%, with lead on 46%, up from a previous poll result of 39%. This new poll comes off the back of a number of polls last week showing the remain campaign pulling ahead, which in turn strengthened GBP significantly to a near four-month-high vs. the EUR and a three-week-high vs. the USD.The USD is in the green today vs. a basket of currencies, buoyed by expectations of a Fed rate rise in the near-term. Those expectations receieved a boost at the tail-end of last week when Fed Chair Janet Yellen suggested that rates could indeed be raised in the coming months. Although the Fed hasflagged the Brexit referendum as a risk factor to be accounted for in their decision-making process, expect a rate rise if indeed the UK opts to stay in the EU.
Worries about Brexit drove the GBP down approx. 11% between November 2015 and April of this year, when it hit a two-and-a-half year low.It has sinced recovered about half of that groun back as investors have priced out chances of an interest rate cut that many were factoring in if Britain opted to leave.
Expect short-term movements to be dictated primarily by the Brexit referendum and US Feds interest rate decision.
13 May 2016 14:34:27 Carney warns of Brexit recession possibility
Mark Carney reduces growth forecast, warns of recession post-Brexit. A quiet week generally with some support for Sterling.
Its been a quiet week on the currency markets with currencies playing out minimal technical ranges. Significantly oil prices have risen of late, mainly off the back of the forest fires in Canada, which has hurt the Canadian Dollar but boosted stock markets. Oil revenues are important for many countries whose economies rely on them, especially emerging markets, currently saddled with worrying debt levels. Venezuela for example is on the brink, but there are many more countries suffering from a downturn. This week Chinese data pointed at further problems. Both imports and exports fell. Asian markets, although helped by oil prices, have been very shaky again this week. In addition Chinese PPI (input inflation) came in at -3.9% m/m. Stock markets around the globe remain subdued. Earlier this week Goldmans slashed their FTSE forecast to a maximum of 6300 for 2016 and until this expectation changes expect very little support for the Pound from this direction. Earlier this week UK factory output showed the first contraction for 3 years - something that once again indicates that 2016 looks to be a problematic year economically. The big mover for the Pound this week was today with Mark Carney once again piling into the Brexit debate. He went as far as to say that Brexit could provoke a new recession and reduced his UK growth forecast for Q2 to just 0.3% q/q. It was a mixed picture though, as his comments in relation to Brexit helped the Pound. The Pound is being supported by anything that deters the possibility of Brexit and remarks by Carney such as this, will do exactly that. However, he did make it clear that it was a leap into the unknown for everyone, an opinion mirrored by the German Finance minister Wolfgang Schaeubel today as well. Significantly, Carney said that he would do whatever is necessary to keep to the Bank of Englands inflation target of 2%. This is a hint that if a Brexit results in inflation he is ready to raise interest rates.
10 May 2016 16:53:12 Tough times favour the dollar
Pound remains trapped in recent ranges while global markets remain flat and EU polls remain level pegging
The Pound has experienced small gains this week and continued to strengthen against the all the major currencies. Partly due to a lack of significant data and partly and possibly more predominantly due to yesterdays Chambers of Commerce vote on the EU referendum. Out of the 2,200 members of the Chambers of Commerce 54 per cent would remain in the EU. This is positive news for the pound. However could also indicate uncertain times ahead, the closer we get to the Referendum in June.The US Dollar remains strong due to general risk aversion in the global economy. Despite the worst NonFarm Payroll results since September 2015 down at 160 from 215 the Dollar strengthened due to the perception of the dollar as a safe haven. With oil and other commodities remaining subdued, the dollar remains strong over all.
The strength of the dollar was further boosted by the fall in oil prices. Prices fell by 5 percent from yesterdays peak on the back of Chinas underperforming trade data. This triggered weakness in commodity currencies, with Malaysian ringgit and New Zealand dollar leading the losses against the dollar.
Looking forward to the week ahead expect further volatility in the strength of the Pound as the BoE Inflation report may deliver mixed signals on Thursday. The Bank of England is likely to revise lower its domestic and international growth forecasts, particularly in the light of recent weakness and may leave CPI inflation forecasts unchanged and with recent PMI data having been so flat, there is little support for the pound in general.
21 Apr 2016 14:30:35 Pound improving despite poor data
The Pound continues to improve despite poor retails sales and claimant figures over past 24 hours, risk appitite back on
Despite an increase in UK unemployment claims of 6.7k m/m (released yesterday) and a retail sales figure of minus 1.6% m/m (released today), the Pound has continued to take back lost ground in the last 24 hours.Earlier today OPEC Secretary-General Abdullah El-Badri made a statement predicting stablisation of oil prices over the coming months. The reaction in world markets has been overwhelmingly positive. This means there has been two consecutive days of strong stock market performances across the globe.As Sterling is a risk-on currency, the reaction has been to sell safe haven currencies and buy back into riskier assets, which is invariably done using Pounds. Also, recent polls are now showing the Remain campaign firmly in command in relation the EU referendum and this will go a long way to settle nerves in markets.
The Pound has also benefited after the Euro strengthened today following the latest ECB press conference. Although interest rates remained the same, he defended the potential for helicopter money to stimulate growth and spending in the eurozone. This kind of approach is not popular in Germany. A recent statement by Germanys finance minister undermining the policies of the ECB was addressed robustly when questioned; we obey the law, not politicians, as we are independent. Draghi also made it clear that any fall in the level of inflation would be addressed by the ECB, meaning further stimulus was not out of the question. However he also reiterated that there was a responsibility by European states to implement the necessary structural policies in order to stimulate economic growth in their regions.
07 Apr 2016 16:55:55 Euro strength against the Pound and the Dollar continues
UK house prices increase adding further pressure on first time buyers and mortgage lenders to address growing demand for more affordable properties
Little has changed over todays ECB press conference, but Mario Draghi did make it clear that further cuts to interest rates (already in negative territory for banks) were still being considered, although there were no changes to policy today. He also said gloomily that 2016 will be no less challenging and“We face questions about the direction of Europe and its resilience to new shocks.”
The March meeting had already announced a further increase in charges to 0.4% deposit rates, and an increase to €80bn, the level of quantitative easing being provided. Remarkably the Eurozone is still experiencing near zero inflation - some might say, a technical impossibility give these levels of liquidity injection.
The affect on currency has been negligible - the real mover of late has been the change of direction by the Fed in relation to interest rate hikes. Despite the Dollar suffering against theEuro it certainly hasnt against the pound which fell further yesterday after the Feds Loretta Mester commented that the economic fundamentals are sound and James Bullard re-iterated Janet Yellens comments that rate rises in 2016 will be gradual. Bullard also emphasized that a broader plan was required long term. It should be noted that in the US corporate and sovereign debt remains a massive problem, currently accommodated by low interest rates - something the fed will be mindful of too.The pound has been falling dramatically of late. Earlier this week UK productivity posted a further decline of 1.2% for Q4 2015 - we currently lag massively behind our G7 trading partners and it is estimated that if we met the average, it would boost our GDP by£467bn a year. It is also significant that the Brexit campaign is level pegging now with the Remain campaign, something that will continue to weigh on the pound. Earlier today Halifax house prices showed a monthly increase of 2.6% which is another blow for the renters - with wage growth very low, rising house prices will be
31 Mar 2016 16:33:25 GBP hampered on the back of poor current account figures
George Osbornes deficit reduction strategy looking shaky after bad figures
Despite some recent gains for the Pound against the Dollar it is still struggling to make headway after the quarterly current account deficit came out far worse than expected today at minus 31bn Pounds for the three months ending February. Forecasts had been for a 21.1bn deficit. The data has been mixed today with GDP revised up for Q4 2015 to 0.6%, giving an annual figure of 2.3%. The Pound had been improving against the Dollar and dropping against the Euro after Janet Yellen brought the Feds interest rate policy more in line with market expectations with two, rather than four, rate hikes expected this year - as had previously been implied in December. The general trend for the Pound against the Euro has been to the downside, perhaps reflecting improving Eurozone data and the inherent weakness of the Pound pre-referendum,
17 Mar 2016 10:34:10 Fed Reserve Dovish, BoE Minutes out later
The Fed Reserve last night indicates rate rises will be slower than forecasted, weakening the dollar. Risk appitite improves ahead of BoE minutes later today
The Dollar has weakened overnight after The Federal reserve kept rates on hold and indicated the rate of rises will be slower than had been indicated last year.The indication now, is 2 rate rises over the course of 2016, but details of this are yet to be determined.Stock markets have risen on the news - feeding risk appetite. However growth and inflation forecasts from both the US and UK yesterday were revised downwards. In the UK the OBR has stated that it sees 0.7% inflation by end of the year, and growth at 2%. In the US growth is expected to be 2.2% and inflation 1.2%.This morning European stock markets are up after oil prices have continued to rise, pushing back to the $40 mark. WTI is trading at $39.2 and Brent $40.95.The EU trade balance relased at 10:00am GMT came out at 6.2B from a forecast of 20.2B with CPI data (YOY) -0.2% on par with expectations.Later today we have the Bank of England meeting and associated minutes. It is unlikely to be indicating any changes this side of the EU referendum, and polls will continue to be watched with close attention until then.US unemployment claims and the Philly Fed manufacturing index is the only key data likely to move the market.
16 Mar 2016 10:28:24 UK Budget Day: US data, UK Unemployment, Fed Reserve
Big day of news today with UK Budget, US Inflation and Industrial data, UK Unemployment and the Fed Reserve Meeting
Plenty of data to rattle markets today with all the above being major market events. First off will be Unemployment from the UK - the UK is already experiencing record employment levels and falling benefit claims and the data just came out showing a quarterly drop of 28k from November to January, a fall of 18k for February alone. The impact on the Pound has been muted though.The Pound is down against a range of currencies following a bad day yesterday and significantly a new poll from the Telegraph shows the Brexit campaign now on top. Frankly, it is the referendum that is drowning out just about everything else at present. The stay campaign came out at 47% and leavecame out at 49%. The referendum poll is on 23rd June.
Despite the poor performance of the Pound, any divergence from the statistics above could provide a buying opportunity for importers. The US Fed has made a commitment to raising interest rates again this year and there is no doubt that some datais not entirely convincing. Having said that, non-farm payrolls have been consistently showing the US labour market growing again strongly and this should ultimately start to feed inflation and keep the Fed on course.
The UK budget is unlikely to offer any great surprises with the key leaked newsbeing a commitment to convert all UK schools to academies by 2022 and more budget cuts. Where the axe will fall exactly though is rather murky. The Budget deficit is still a big problem for George Osborne and stealth taxes such as Insurance tax and an increase in National Insurance may well be his key choices.
11 Mar 2016 12:45:25 A volatile day in the European markets after the latest ECB announcement.
A tale of two halves on the back of the latest European Central Bank meeting.
Super Mario yesterday delivered a comprehensive increase to the Quantative Easing programme set out in Januray 2015, with markets responding quickly, moving nearly 1 percent, pushing GBP/EUR to around 1.3060. The ECB increased stimulus from€60bn p/m to €80bn p/m, along with a cut to the main refinancing rate from 0.05 percent to 0 percent and a deposit rate cut to -0.4 percent from 0.3 percent. On the back of this the Euro lost ground against all the major pairs pushing GBP/EUR to1.3060 and moving EUR/USD down to 1.08. However this did not last long, during the Q and A session with Mario Draghi the market swiftly made a u-turn. The u-turn came on the back of comments made by Draghi saying that he does not expect to see any further rate cuts nor an increase to the QE programme.
On the back of these comments the market reacted sharply and GBP/EUR fell, ending the day at a low of 1.2761. With the Euro (UKs biggest trading partner) strengtheing after the announcement we saw a knock on effect on the USD and a weakening of the Dollar, pushing the Dollar into the mid 1.42s. In summary they have sent the message out that theECB are done for now. However the sharp fall in GBP/EUR may have been an overreaction so expect some correction in the markets over the coming days.
07 Mar 2016 12:47:30 Non Farms +242k against +195 expected
Risk appetite has taken a bounce following higher than expected improvement in US employment for February
The big monthly data came out a little earlier and appears, perhaps counter-intuitively to have weakened the Dollar. It appears that it has been positive for risk appetite as it shows that if the US economy is putting on jobs, this should in turn feed through to support for the global economy more generally. The stock markets are up across the board - good for Euros and Sterling and bad for the Dollar.Yesterday a range of Eurozone indicators showed improvement - over all Eurozone PMI data averaged 53.3 against 53 predicted, and in expansion, with both Italian and Spanish PMIs up. This should offer some relief for Mario Draghi who will be making announcements on March 10th. His comments previously indicated more monetary easing so it will be interesting to see whether he acts.With no significant change expected from the UK economy or the BoE this year, and so much uncertainty about the EU referendum affecting the pound, any improvement in global markets will be a welcome boost for those with FX liabilities. In this regard oil related issue will also be salient.
Tuesday next week we have more UK manufacturing data out - not expected to be great, and in any case unlikely to be a market mover of significance in the broader context. The ECB press conference on Thursday will be highlight of the week - it has been known to move the market 6 cents in 24 hours, in recent times.
24 Feb 2016 14:09:34 Sterling weakness continues
Concerns over UK economy and mixed opinions over UK exit from the EU.
The pound has continued to fall as markets price in an increasing likelihood of a UK exit (Brexit) from the Eurozone. The polls have been increasingly close and over the weekend Boris Johnson came out in favour of leaving, stimulating a further sell off of sterling. National opinion is very divided and the result remains extremely uncertain. While the CBI is pro-remaining, the FSB is not passing comment as its membership is evenly split. This is significant as it composes the small business sector which often suffers from EU red tape. oday HSBC warned that if there was a Brexit sterling could fall by 20% and wipe 1.5% off GDP. The effect of such a statement by HSBC is already being seen with Sterling trading well below 1.40 now on the Dollar and the lowest level against the Euro since January 2015. GBP is down across the board in fact so if you are long commodity currencies this is worth noting.Data-wise its a fairly light week. Tomorrow sees UK GDP figures (second estimate) released for Q4 2015. In the US there is services PMI today and then durable good orders and unemployment figures tomorrow.
17 Feb 2016 10:25:08 UK employment at highest since 1971, Fed Reserve minutes next
The Pound has taken a slight boost from better emplyment figures but many factors still weigh, Fed Reserve Minutes out later
Unemployment data just released showed a better than expected reduction in jobless claims of 14.8k and UK employment data hit record highs at 74.1%.However, the impact so far has been fairly limited. Initially, there has been a small amount of upside against the Euro. The Pound is still an unfavorable currency despite the safe haven appeal of UK government bonds - now offering yields between 1.3 and1.8 percent.There are a few reasons for thePound being sold off. Uncertainty surrounding the EU referendum, poor stock market performances around the world (a product off oil price declines) and yesterday perhaps most pertinently Ian McCaferty from the MPC commenting on the possibility of negative or lower interest rates as a result of the critically low level of inflation in the economy. Inflation data was released yesterday showing that it was 0.3 percent y/y, which is a small rise but still way below the 2 percent target and corroborating Mark Carneys prediction that inflation will remain under 1 percent for 2016. Until this changesthere is no reason to buy the Pound. Wage growth remains at 1.9 percent y/y - an unexciting figure.
The stock markets have taken a slight bounce over the past 24 hours, making up a proportion of lost ground - they are still in bad condition and coulddrop further unless we see an improvement in both oil prices and global growth levels. The first positive was Mario Draghis comments on Monday that he would do more to help the Eurozone in March. Secondly, there has been an announcement by some oil producing countries (Russia, Saudi, Qatar and Venezuela) that they would freeze production. However, Iran have said that they wont and thus the bounce has been muted. This is a story to watch though.Later today we have the Fed Reserve meeting minutes and so expect a flat day until this happens - the markets will be looking for signs of whether the Fed will alter course on its strategy to normalise interest rates during 2016.
04 Feb 2016 13:22:22 MPC Vote unanimous, Inflation 1% 2016
MPC votes 9-0 in favour of keeping rates and QE as it is, inflation predicted to remain under 1% for 2016
Mark Carney has given his inflation report in which the key comments were that inflation would remain below 1% until end of the year and growth would be 2.2% as opposed to 2.5%. Thus any interest rate rises look firmly off the agenda. However he also said that next move will be up, dispelling any rumours that interest rates could be cut further, leaving the Pound almost where it was first thing today.Initially the news came through that the MPC had voted 9-0 in favour of maintaining interest monetary policy as it. Previously Ian McCafferty had been voting for a rise but not this time and the effect was a drop of over a cent.
However, although the effect was negative for the pound initially, mixed signals from Carney prevailed. It is clear that nothing will change until after the referendum because there is no way of knowing the consequences for growth if we leave the EU. However Carney does not feel that growth is currently under too much threat predicting that this year growth will be2.2% - lower than the 2.5% that had been predicted but still not bad in the circumstances. He also expects wage growth to be 3% rather than 3.75 previously predicted. Again, still a decent figure given the state of global markets. Additionally his comments that rates are unlikely to be cut also offered support.
01 Feb 2016 11:55:46 UK Manufacturing PMI imrpoves
UK Manufacturing improves slightly as we go into a week of significant events and data releases
There has been a slight improvement in the fortunes of the Pound after UK manufacturing PMI showed a better than expected 52.9 reading. Manufacturing has been the part of the economy that has been most shaky of late with its exposure to global markets cited as a significant factor. All eyes will now be on the next Inflation figure to see whether it has started to edge up, as some predict, as the effect of falling oil prices diminish. The BoE inflation report is on Thursday and the next data on February 16th.The Pound has been suffering of late as a strong Dollar and fear in global markets have taken effect. Last week however there were some signs that the US economy is not performing quite as well as the Fed Reserve has led everyone to believe. Durable goods orders were down at -1.2%, GDP came out at0.7% rather than 0.8% (q/q) predicted, the trade balance was worse than expected and consumer sentiment was also down. Unemployment claims were up and CPI was worse than expected at 0.1%. So all in all it could be looking like the Fed rate rise in December may have been rather premature and this could derail the projection that rates will normalize over 2016/17. However sentiment has yet to change significantly enough to help the Pound, indicating that much of the reason for the Pounds weakness against the Dollar relates to the price of oil and global markets instead.The Euro has not benefited either and remains around 1.07/8 (EUR/USD). The Euro took a blow after Mario Draghi indicated on January 21st that more dovishness could be on the cards in March. He mentioned that there were no limits to action to reflate the Eurozone. Towards the end of January almost all Eurozone economic data was disappointing. Sterling has declined over 10 cents in the past couple of months against the Euro but took a boost after his comments and now trades just above 1.30.
20 Jan 2016 09:19:31 GBP continues to struggle vs. most majors as Carney warns of no end in sight
GBP tumbled to a seven-year-low yesterday after Mark Carney talked of no set timetable regarding a prospective rate rise in the UK, continuing the BoEs gloomy rhetoric of late on the state of the world economy.
GBP threatened to have a good day yesterday morning after December inflation figures revealed a near 1-year-high, before Carneys comments at the University of London pulled GBP down to a 1-year-low vs. EUR at 1.29 and 7-year-low vs. USD at 1.4130.Pointing to weaker-than-expected domestic and global growth of late, Carney also warned of no end in sight with the Chinese economy still struggling and the shadow of an EU referendum this year looming large. Rate rise estimates have now been pushed back to Q4 this year at the earliest, with the most popular previous bet having been Q1 this year.
All eyes will be on UK employment and earnings figures due at 9.30am, with many hoping for a positive result that may give brief respite to this most recent and severe of slides. GBP is now down 10% vs. USD in the past 6 months and about 8% vs.the EUR in just 6 weeks.
14 Jan 2016 16:49:37 Bank of England Dovish
Todays BoE minutes reveal concerns about continuing economic headwinds and low oil prices keeping inflation low, poor manufacturing and industrial data earlier this week notable
Today the MPCs monthly meeting concluded with a decision to keep interest rates low and any expectation of an interest rate rises being pushed back further than anticipated. The vote was rather inevitably unchanged at 8:1 and cited that The 40% decline in oil prices means that the increase in inflation is now expected to be slightly more gradual in the near term.Moreover, they mentioned all members agreed that, given the likely persistence of the headwinds weighing on the economy, when the bank rate does begin to rise, it is expected to do so only gradually and to a level lower than in recent cycles.
They also commented that recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets.
In addition to the poor manufacturing and industrial figures from earlier this week, the rather negative commentary will not be helping Sterling. Exporters, having had a good run over the past few years, will inevitably feel a drop in demand from other regions. Services will not been immune either as the British economy is such an open and globalised one.
It makes for rather depressing reading - but forewarned is forearmed. With low interest rates here in the UK and rises expected this year in the US, the best chance of an improvement for purchasers of foreign currency will likely be a change in the fortunes of the Eurozone. Clearly our exports to Dollar denominated countries will be favourable with the weak Pound, but with problems in emerging markets, such a benefit could be muted.
07 Jan 2016 09:46:49 Chinese stock market suspended - Fed Reserve decision was unanimous
Chinese stock market suspended as Yuan is allowed to devalue by PBOC - Fed Reserve decision was unanimous but it was a close call
Earlier today the Chinese stock market suspended trading for the second time in a week, giving yet another boost to the safe haven appeal of the Dollar, Yen and Swiss Franc. Markets tumbled as China devalued its currency yet again - a sign that it is seriously worried about the state of manufacturing in its economy.Today George Osborne has and will be commenting on the UK economy. Later today he will warn of a dangerous cocktail of new threats to the UK economy. Describing 2016 as mission critical for the UK economy - an expression he used earlier in an interview for the Today program on Radio 4 - he has clearly got a message to get out today, and markets will be paying attention to his speech in Cardiff this afternoon.Oil is now trading at its lowest level for 11 years, with Brent Crude standing at just£22.66 a barrel. This will be hurting the treasury in terms of tax revenue and driving inflation lower - something that could end up hurting domestic demand as people hold off making purchases in the hope that prices will fall further. US oil stocks have risen 10% in a week, the biggest rise since 1993, and tensions between Iran and Saudi will likely prevent any change of policy by OPEC short term.The FTSE is now trading below 6000 - at 5898, a long way from the 7000 seen at the start of 2015 - bad news for the Pound.Yesterday evening the Fed released its FOMC minutes, relating to its December decision to raise interest rates - apparently the decision to raise was a close call. However with inflation concerns taking priority, the decision was unanimous. The belief is that global risks will not prevent a strong growth figure this year in the US and a 2% inflation target being reached. The divergence from the economic malaise in other regions across the globe is stark, and many believe raising rates will have the potential for a negative knock-on effect globally this year. Tomorrow we will have non-farm payroll data released, always a cause of volitilit
05 Jan 2016 17:27:02 Dollar strength continues
Sterling however has also seen huge weakness against the US Dollar this week as it currently trades at a 9 month low
Consumer price inflation in the Eurozone rose 0.2% last month, missing expectations for a gain of 0.3% and following a 0.2% increase in November, official preliminary data showed on Tuesday. The softer than expected data added to pressure on the European Central Bank to step up measures to boost price growth in the Euro area. This constitued bad news for the ECB who just last month decided that an increase in QE was not needed. The Euro extended losses against the Dollar and Sterling after the report, falling by 0.8% and 0.5% respectively in todays trading alone.Sterling however has also seen huge weakness against the Dollar this week as it currently trades at a 9 month low, with many favouring the safe haven Dollar amid serious uncertainty across the global stock market following a terrible opening day to 2016 yesterday. Global uncertainty, divergent monetary policy and a strong US economy are all paving the way for what could be an extremely strong year for the Dollar. With the Federal reserve expecting to increase interest rates by 25 basis points per quarter, we eagerly await the results of non-farm payrolls this Friday, which is expected to give a reading of 211k.
04 Jan 2016 17:27:52 Global markets slow as tensions increase in Middle East
Shares and stocks fall globally, Oil prices increase and weak data from US not enough to stop it reaching 9 month high against the pound.
Global stock markets plunged on Monday, the first trading day of the new year, as weak Chinese manufacturing data and heightened geopolitical tensions between Iran and Saudi Arabia dampened appetite for riskier assets.Mainland China shares tumbled 7%, while Japans Nikkei lost 3% with the DAX also down 3%Oil prices pushed higher on Monday, amid mounting geopolitical tensions in the Middle East after Saudi Arabia cut diplomatic ties with Iran over the weekend.The Pound soon lost modest gains against the broadly softer dollar, after data showing that activity in the U.K. manufacturing sector continued to slow at the end of 2015.GBP/USD was down as much as -0.46% with ranges today varying from 1.4812 to 1.4660 - the weakest level since April 2015.Manufacturing activity in the U.S. contracted at the fastest pace since July 2009 in December, dampening optimism over the strength of the economy and adding to uncertainty as to how fast the Federal Reserve will raise interest rates next year.
17 Dec 2015 18:01:27 Fed raises rates, Dollar continues to strengthen
The Dollar has strengthened following a much anticipated 25bp rise in the Fed funds rate. Some good news from the UK after positive retail sales data, but not enough to help Dollar buyers.
Last night the Fed reserve raised interest rates by 0.25% to 0.5%, as markets had predicted. Janet Yellen, the Chair of the Federal Reserve commented, with the economy performing well and expected to continue to do so, the committee judges that a modest increase in the Federal funds rate is appropriate. Earlier in the week, inflation had come out in line with expectations at 0.5%, clearing the way. The divergence from ECB policy is clear following Mario Draghis unexpectedly less dovish policy announcement earlier this month. The Dollar strengthened across the board although volatility was lower than expected. Although there was an initial drop - probably down to profit-taking - the overall consensus was to buy into Dollar denominated stocks and indeed the Dollar itself. Inflation is expected to rise to the target of 2% over the medium term and growth in 2016 is estimated to hit 2.4%. Unemployment is forecasted to be at 4.7% - historically very low. As a result the forecasted short term interest rate yield curve has steepened, adding further value to the Dollar (a 1.25-1.5% yield by end of 2016 expected).It was a mixed picture in stock markets. Asian stocks responded favourably overnight as the Feds decision, although priced-in to markets already, boosted confidence that the world economy and indeed the American economy is on a positive path. However, commodity related stocks faired badly as they are priced in Dollars and will become relatively more expensive for purchasers. Emerging markets also get knocked as they tend to have high interest rates to attract investment and so become less favourable as the US raises interest rates.In the UK today, retail sales data posted an impressive 1.7% increase (m/m) with some of the highest ever pre-Christmas expenditure ever seen. Much better than 0.6% predicted but not enough to help Dollar buyers. With a quiet day predicted tomorrow and thin trading over Christams, the big events are out of the way until 2016.
11 Dec 2015 09:51:04 UK trade deficit widens, US data pending, MPC decison non-event
September trade data from the UK shows a worrying trend in exports, US retail sales and Michigan Consumer Confidence data due later.
The pound has remained firm over the past 24 hours despite trade data yesterday showing a worrying trend in exports. The balance of payments deficit widened to 12.5bn pounds in October - much worse than the 9bn pounds expected. The value of exports is 2.5bn pounds less than this time last year and 0.8% down on last month. The strength of the pound and the state of the Eurozone could be cited as reasons for this. Much of the deficit can be explained by a rise in imports, however, which may well also signal improving demand in the UK economy.Yesterday, the MPC rate decison was typically uneventful and most forecasters suggest it will remain this way for the next 12 months too. The key area of interest is the voting, which remains at 8 to1. The minutes also showed nothing new. The key mover for sterling at present appears to be how itgets caught in between the euro, dollar and global risk environment. Next week we will almost certainly get a Fed Rate hike - currently 80% priced in - and the reaction to this will be illuminating. The reaction may well be one of risk aversion, as a rate hike could hit growth expectations - futureattention will be on the pace of change by the Fed and to what extent international monetary policy deviation takes place in 2016. US data today may well have little or no effect as a result. However, some volatility can be expected early afternoon, as the US releases retails sales data and the Michigan consumer confidence survey.
11 Dec 2015 09:18:05 UK Manufacturing just posted -0.4% other data shaky
UK Manufacturing and Industrial data released and looking poor - industrial production was slightly up at 0.1% but Manufacturing down -0.4%. Also, oil - economic performace in Asia looking poor, demand side is not looking rosy
Sterling has dropped sharply versus the Euro since Draghis press conference last Thursday, losing as much as 4 cents - it gained a bit yesterday, normal adjustments to be expected after such a movement. The Euro has been rather over sold as markets had priced in greater dovishness than actually took place.In relation to the dollar, sterling has dropped back again this morning following an improvement at the end of last week and what looked like solid foundations yesterday. Now looking precarious around 1.50. Most notably oil prices reached the lowest level since the start of the financial crisis -good for the dollar but bad for oil related industries and indeed those countries that depend on Oil revenue. On Friday OPEC kept oil production at 37m barrels a day - dissapointing the sector. Shareholders will be suffering and this is reflected in Asian markets as they saw a 3 week low. The bad news for China has continued as imports were shown to have fallen for the 13 months in a row and foreign exchange reserves stand at $3.4 trn down from $4trn last year and now the lowest since Feb 2013
Please note UK Industrial and Manufacturing today. The latter has just come in at -0.4% so expect sterling to drop further today. UK data has been getting shaky and another poor result is worrying. We have already seen Halifax house prices come in at -0.2% and BRC retail sales y/y -0.4%. UK demand remaining very low, wont help Dollar buyers already suffering from a stroing Dollar.
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04 Dec 2015 10:16:44 Non-Farm Payrolls later today, OPEC decision on oil output
Today sees two potentially massive market movers - NFP data at 1.30pm GMT - and the OPEC meeting - will they cut oil production?
Markets will be watching the NFP data with eagle eyes today so expect a massive amount of volatility around 1.30PM GMT. The Euro strengthened by 3 cents yesterday after yesterdays ECB press conference in which Mario Draghi surprised markets with a more dovish alteration to bank deposit rates than expected (10bps, making them -0.3%), whilst also extending the ECBs QE programme until 2017. The latter certainly fuelled risk appitite and we saw a big move against the Dollar as a result. For the last few weeks all the signals have been for the normalisation of rates - a rise of 25bps is now 70% priced in according to analysts. However, a poor result from NFP might just change the view from the Fed that a rate rise is desirable. Earlier this week ISM manufacturing data came in at 48 (50 + being expansion) and even if Yellen appeared unphased, it will be worrying some that a rate rise could be premature. A poor result will almost certainly hurt the Dollar significantly.Also today OPEC will be making a decision about output. It is highly politicised and may never have seemed more pertinent - oil producing countries have been suffering badly from low prices - many drilling projects have been abondoned and connected industries have been badly effected. Many peoplewill be hoping they cut production but in reality the allure of driving out competition is likely to prevail.
03 Dec 2015 11:03:56 UK Services PMI improves, all eyes on ECB press conference
Sterling is supported after a better than expected PMI services release this morning, while the real movements can be expected later during the ECB press conference.
Todays UK PMI Services release was the best figure since July and contrasts with the two PMI readings earlier this week showing both Construction and Maunfacturing sectors contracting month on month. Services PMI was well in expansion at 55.9 against 55.1 expected and 54.9 last month. However, it is worrying times for UK manufacturing with contagion from desparately depressed demand from the Eurozone combining with the relativly high cost of UK goods there. With commodity economies and China going backwards, markets for UK exports are looking shaky, creating a thorn in the side for George Osbornes deficit reduction plans. Earlier this week Construction came in at 55.3 against 58.4 expected and Manufacturing 52.7 against 53.7 expected.The big news today for currency markets will be the ECB conference. Draghi has been very dovish of late, indicating a staggered system of charging for cash deposits at the banks. The ECB already charge 0.2% and yet it appears to be having almost no effect. Both retail sales and inflation data were dissapointing this week ( -0.4% and 0.1% respectively) and Draghi has already been indicating that both further stimulus and further banking charges are on the table with a move from 60 - 80bn euros a month and a 15 basis point rise in negative interest getting priced in by the currency market. Expect volatility around 12.30-2pm today.
12 Nov 2015 17:53:54 UK unemployment at a record low since 2008
Unemployment at a record low since 2008 with lower than forecast expecations for Q3.
On Wednesday British jobless rate decreased to 5.3 percent in the three months to September of 2015, down from 5.4 percent in the previous period and below market expectations. It is the lowest level since the three months to April of 2008 as the employment rate hit a fresh record high.The pound strenthened against the Euro after comments by European Central Bank President Mario Draghi underpinned expectations for further stimulus, possibly as soon as next month. Draghi warned that inflation pressures are weakening and the euro zone economy is facing clear‘downside risks’ from the global economy.
In the US, the Fed funds market currently shows a 66% percent chance of a hike in December.
Fed Chair Janet Yellen was speaking in Washington but refrained from making comments on monetary policy, which weighed on the greenback. Jobless claims was up 6000 on expectations, but this has had little impact with dollar posting a +0.05% improvement against the pound to 1.5207 as UK trading draws to a close.
04 Nov 2015 09:52:41 Markets gear up for Super Mario&Super Thursday
The GBP has hit a 10-week-high against the EUR this morning, trading comfortably over the 1.41 mark.
All eyes now turn to Super Thursday, with the simultaneous release of the BoEs latest quarterly Inflation Report as well as an interest rate decision and the minutes from its latest MPC meeting. Despite the MPC consistently voting 8-1 against a hike of late, some are expecting another member of the MPC to vote for a hike tomorrow. If this happens, expect the GBP to surge, particularly against the EUR, which has been suffering from poor Services PMI data this morning and has the shadow of QE2 looming large in December.
04 Nov 2015 09:39:16 GBP surges amid weak US and European data.
GBP recovers against all the major currencies, making up for negative inflation data released yesterday.
Sterling has surged against the major currency pairs today, showing gains of over 2 cents against the USD and 0.75% on the EUR, with similar gains against most major currencies. A series of poor CPI data releases from several European economies such as France, Spain and Italy led to a global EUR sell-off, which combined with the fall of European Industrial Production by 0.5% attributed to a miserable day in the European markets. Similarly GBP/USD reversed Tuesdays losses on the back of a mixed UK employment fall (the lowest unemployment rate since 2008 or 5.4%). However, the market picked up further with a series of negative US data releases too. Core PPI was down -0.3% along with poor PPI figures and retail sales figures leading to a strong day for the GBP. We will wait to see what tomorrow brings with more weak data expected from the US markets.
13 Oct 2015 14:18:13 GBP tumbles as UK Inflation data drops back into the red
Despite expectations of 0% MoM, September UK inflation data showed a move back to deflation at -0.1%.
Core inflation prices also fell flat, increasing only 1.0% YoY but keeping in line with last weeks MPC minutes in which they downgraded their inflation forecasts for Q1 next year. Many analysts are pointing to Dec/Jan/Feb inflation figures as key to ascertaining when a much-anticipated UK rate rise may come. Despite some playing this data release down GBP has suffered immensely in the aftermath, losing 0.8% against the USD and over 1% against a raft of majors including the EUR, JPY, CHF, DKK&SEK.
09 Oct 2015 16:54:58 US recovery still on track but global markets leave Fed in limbo
Yesterdays FOMC minutes all but confirmed that despite US economic optimism, a rate rise is dependent on an up-tick in the world economy and as such is now more unlikely than likely to happen this year.
Fears over China and USD strength were cited as key reasons for a delay, as the FOMC minutes re-iterated that the majority of the bank are in no hurry to hike rates in the current climate.Normalcy has been restored, for now, with stocks and commodities enjoying their biggest rallies in years this week. Expect this to be short-lived as the Fed has announced their next meet to be a live meeting, adding to the sense of drama around the occasion.
Although unlikely, it is certainly notimpossible that (even without a press conference scheduled) the bank could decide to hike rates at that meeting and a call a press conference thereafter to explain the context of the hike.
GBP/USD has hit a 2-week-high off the back of this news, trading above 1.53 on Friday, having bottomed out at 1.5120 earlier in the week.
02 Oct 2015 16:58:39 Q4 rate rise in jeopardy after weak US data
The first Friday of the month as always brought us a highly anticipated US non-farm pay rolls figure, the first since assurances from the Federal Reserve that interest rates were still on course to increase this year.
With September bringing an expected 201,000 new jobs outside the farming industry to the US economy and with an interest rate rise looming, the USD has strengthened significantly against the GBP and has started sliding back towards the 1.50 region we saw earlier this year. With a low this week of 1.5105 it came as a big shock when the Bureau of Labour Statistics showed that only 142,000 were added in September - 58,000 less than expected. The tepid pace of gains followed additions of just 136,000 in the previous month, all but confirming that the US Federal Reserve will now wait until next year to increase rates, with some analysts predicting a rate hike as late as March. As a result, the USD has fallen by 1.4% against the EUR and 0.7% against the GBP in todays trading.In the EU weve seen a significant improvement for the EUR against many of its major counterparties, particularly against the GBP. In a week where many have called for extra stimulus to boost the Eurozone economy following a dip back into negative inflation, the EURs strong performance has been somewhat of a surprise. Many have attributed recent EUR success to weak stock market performances of late, particularly in light of the recent Volkswagen debacle, as investors cash out and convert funds back into EUR to seek new areas to invest.