Brexit maneuvering rising ahead of Jan 15th vote
House prices declined 0.7% in December according to the Nationwide Index with annual growth of only 0.5%, the slowest since February 2013. Services sector PMI bounced back to 51.2 for December from a 28-month low of 50.4 in November, although underlying activity remained constrained and business confidence as always, sapped by Brexit uncertainty. The Sterling reaction overall was muted.
Sterling suffered sharp losses against the Dollar after strong US payrolls data, hitting lows around 1.2620 before snapping back above 1.2700 after the Fed Chair Jerome Powell’s comments. The Pound also secured wider gains as improving global risk appetite underpinned sentiment, moving back above 1.1160 against the Euro. Markets remained wary with parliament returning from recess today. There is still no evidence of Theresa May being able to win the scheduled Brexit agreement vote next week and political tensions and manoeuvring are set to intensify. Firm global risk conditions are supporting a positive start to the week for the Pound, trading near 1.2750 against the Dollar and 1.1150 on the Euro.
The Headline December US employment data was much stronger than expected with an increase in non-farm payrolls of 312,000 compared with consensus forecasts of around 185,000. The average hourly earnings figure also increased 0.4% which pushed the year-on-year increase to 3.2% from 3.0% in November. There was also an increase in the unemployment rate to 3.9% from 3.7% in the previous month as the participation rate increased. The final services PMI index was also revised to 54.4 from the flash reading of 53.6 and the Dollar gained significant ground following the strong data releases with the Euro initially retreating to lows just below 1.1350 over the weekend.
Federal Reserve (Fed) Chair Powell played down the immediate importance of the weak ISM data, especially given strong jobs data. He also stated, however, that the central bank would be patient in watching data and would be prepared to adjust the policy stance quickly if financial conditions tightened. Powell commented that the Fed is sensitive to the message from markets and could react quickly if necessary. Balance sheet reduction would also be re-visited if it concludes that the current plan is causing problems. The rhetoric overall was seen as dovish with indications that the FOMC would not look to sanction further near-term rate increases.
The USD has weakened in value over the weekend due to Powell’s overall rhetoric. Today across the pond we see the ISM Non-manufacturing will be the salient event.
Friday saw the single currency get off to a tough start with weak CPI data coming out of the Eurozone. Growth concerns remained for the area and continued weakness in France was offset by a surprise figure of increased employment in Germany.
Compared to the Dollar which saw very strong job numbers for December, which initially caused the pair to slide to the 1.1345 level before settling around the 1.14 mark.
Very little data is due out today – factory orders and retail sales out of Germany, public deficit/GDP from Italy and retails sales from the EU. These figures will, however, not provide too much volatility with the majority of the interesting data due out of the US.
Data to watch:
15:00 USD ISM Non-Manufacturing PMI (Dec)
15:00 USD Factory Orders (MoM) (Nov)
15:00 CAD Ivey Purchasing Managers Index s.a (Dec)
15:00 CAD Ivery Purchasing Managers Index (Dec)
17:40 USD FOMC Member Bostic speech