Contagion fears dampen risk appetite
UK mortgage approval rose above market expectations to 46,800 in December, up from November’s 44,100 but with markets focussed firmly on global trade and risk conditions the data had little currency impact. Overall confidence in the global economic outlook deteriorated as coronavirus contagion fears increased. UK equity markets remained under pressure and oil prices continued to lose ground.
The UK government confirmed that David Frost (not that one!) would lead the UK negotiating team in talks with the EU on our future relationship. Irish PM Varadkar’s comments on the toughness of negotiations to come had some negative impact on Sterling sentiment.
The Euro strengthened to the 1.1848 area despite it’s own concerns and the Pound lost ground against the Dollar as it dipped below 1.3050. Sterling remains on the defensive at market open this morning as rate cut speculation curbs potential pound support and the Euro hovers around 1.1834.
US new home sales declined slightly to an annual rate of 694,000 for December from a revised 697,000 previously and below consensus forecasts. Elsewhere, the Dallas Federal Reserve (Fed) manufacturing index strengthened slightly to -0.2 from -3.2 previously. The dollar continued to gain an element of support on defensive grounds as risk appetite deteriorated and commodity currencies lost further ground during the day.
There was some speculation that enough Republicans would break with the party line and vote for witnesses to be called in President Trump’s Senate impeachment trial, although the immediate impact was very limited. A rally on Wall Street faded quickly and the dollar was unable to secure a further recovery.
The German IFO business confidence index declined to 95.9 for January from 96.3 previously and below consensus forecasts of 97.0. Although there was a small improvement in the current conditions index, there was a fresh dip in the expectations component.
According to the IFO, the economy has had a somewhat sombre start to the year, although the industrial sector is slowly improving, overall demand has increased in the sector and there is reason to be cautiously optimistic. Given that markets had been expecting an improvement in the headline index, the positive rhetoric did little to improve Euro-zone sentiment even with slightly more positive rhetoric from the institute. German yields also moved lower as equity markets came under sustained pressure which hurt the single currency.
As of writing, the Euro is trading at 1.1015 against the Dollar.
Data to watch
08:00 – EUR – Spanish Unemployment Rate
13:30 – USD – Core Durable Goods Orders
13:30 – USD – Durable Goods Orders
15:00 – USD – CB Consumer Confidence
15:00 – USD – Richmond Manufacturing Index