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Borrowing jumps and manufacturing falls

Borrowing jumps and manufacturing falls

The main economic highlight today is Eurozone inflation data in the form of a CPI reading. The core year-on-year CPI figure is expected to tick up slightly from 0.2% to 0.4%. However, if yesterday’s CPI data from Germany is anything to go by the result may be underwhelming. A weak price growth reading today could spark speculation that there may be further expansion of the quantitative easing programme, and reverse some of the strength we have seen from the Euro over December. It may likewise punish the Pound as further European Central Bank (ECB) easing stands to compound imported disinflation pressure in the UK, delaying the possibility of Bank of England rate hikes.

Despite UK data coming in weaker than the market consensus yesterday, Sterling was able to claw back some of the losses versus the Euro. The appreciation of the Pound was, however, somewhat muted and came as a result of less than impressive inflation figures from Germany as opposed to a resurgence in the value of Sterling.

This was detailed in the manufacturing report that we received yesterday which showed us that the UK manufacturing industry disappointed in December in comparison to November’s figures. Some predict that we may continue to see a downward trend in other economic sectors following the impact of the recent storms which swept the country.

From a political standpoint, news filtering through tells us that sentiment from a UK business standpoint is shifting towards the negative. The number of finance chiefs who oppose a “Brexit” has decreased from 74% to 62%, whilst the number of chiefs completely in favour has shifted from 2% to 6%, mirroring consumer sentiment.

US Data yesterday showed Production on the ISM index slipped from 48.6 in November to 48.2. Any number below 50 indicates factory activity is contracting and yesterday’s data showed the greatest decline for six years. Blame has been placed on oil prices and the oil industry’s lack of demand for metals. This coincided with data showing a decline in Chinese manufacturing that spooked global markets on Monday. A report from the Commerce Department showed that construction spending also slipped for the first time in a year and a half, falling 0.4% in November – the biggest drop since June 2014.

Data to watch: 10am Euro Consumer Price Index, Year on Year, December.

 

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