UK GDP grew by 0.3% in December, reversing November decline and avoiding recession talk. Fourth quarter GDP growth, as expected, was unchanged but Q3’s data was revised up and the annual increase beat market expectations with 1.1% growth. Industrial production data was poor, only modestly better than previous and the annual figure revealed a 1.8% decline. UK Goods Balance figures revealed a rare trade surplus in December. Overall the data provided modest relief for Sterling, expectations of a better first quarter and no interest rates cut.
The Pound peaked just above 1.2950 against the Dollar and 1.1876 against the Euro. Mark Carney, Bank of England Governor, stated that any interest rate increases would be modest and Monetary Policy Committee member Jonathan Haskel reiterated his preference to cut rates now given limited scope for manoeuvre. Sterling opens just above 1.2950 this morning and global risk appetite is steady.
The US NFIB small-business confidence index improved to 104.3 for January from 102.7 previously and above consensus forecasts. The JOLTS job-openings data declined to a 22-month low of 6.42mn for December from a revised 6.79mn the previous month with a slowdown in employment growth for the month which caused an element of unease. St Louis Federal Reserve (Fed) President Bullard stated that rate normalisation of previous years will pay dividends as the Fed has scope to react to a downturn.
In testimony to the House of Representatives, Fed Chair Powell stated that the current policy stance is likely to remain appropriate as long as incoming information is consistent with the Fed’s outlook. He also stated that some uncertainties surrounding trade had diminished. Powell expected the inflation rate to move closer to 2% as the unusually low readings early in 2019 drop out of the calculation. The rhetoric had little net impact with the dollar correcting slightly lower as commodity currencies made limited headway.
The Euro was unable to make headway against the Dollar yesterday with a test of the 1.0900 support area. ECB President Lagarde again called in fiscal policy to assist monetary policy and reiterated that the inflation rate remains some distance below their medium-term aim.
The single currency continues to be undermined by expectations that it would be used as a global funding currency, especially given that volatility remains close to record lows. There were also further concerns that weakness in China due to the coronavirus would have an important negative impact on the Eurozone. As of writing, the Euro trades at 1.0910 against the Dollar.
Data to watch
15:00 - USD - Fed Chair Powell Testifies
15:30 - USD - Crude Oil Inventories
Posted in Daily Market News on Feb 12 2020