Coronavirus reaction is contagious
GBP UK consumer lending data showed an increase to £5.8bn in December, up from November’s upwardly revised £4.9bn and the strongest monthly reading since April 2016 as consumer credit increased to £1.2bn on the month. The data suggests increased confidence and in a marked contrast to weak retail sales; potentially underreporting consumer spending. The Pound held steady until the US market came online and then gradually gained despite increased risk aversion. There was significant month-end position adjustment and Sterling pushed higher into the 4pm London fix, reaching 3-week highs of 1.3200 against the Dollar with the Euro settling close to 1.1904. Futures market data recorded a decline in bets on Pound gains, but positioning will likely clip Sterling support. The Pound opens near 1.3155 on the Dollar and underlying trade concerns are weighing it down.
The US PCE consumer prices index increased 0.2% for December compared with consensus forecasts of 0.1%, but the year-on-year increase met expectations at 1.6% from 1.5% previously. The Chicago PMI index declined to 42.9 for January from 48.2 previously, below expectations of 48.9 and the lowest reading since December 2015. The new orders index declined further with unfilled orders at a 4-year low triggering fresh unease over manufacturing and undermining sentiment.
Federal Reserve (Fed) vice-chair Clarida stated that a one or two-quarter slowdown due to the coronavirus would not change the bank’s outlook. There was, however, a further shift in futures markets with the chances of a March rate cut seen at around 26%. The dollar overall lost ground with a dip to 10-day lows for the currency index. Against the Euro, the Dollars advanced to highs around 1.1090 with a slight retreat this morning as the greenback recovered slightly while commodity currencies remained under pressure.
According to the preliminary flash estimate, Eurozone GDP increased 0.1% for the fourth quarter of 2019 compared with consensus forecasts of 0.2% while the year-on-year rate slowed to 1.0% from 1.2%. The headline Eurozone CPI inflation rate increased to 1.4% from 1.3%, in line with consensus forecasts, although the core rate declined to 1.1% from 1.3%. There was little change in expectations that the ECB would remain extremely low for the foreseeable future.
As of writing the Euro is trading at the 1.1070 figure against the Dollar. The pair may also take cues from the final German and Eurozone PMI numbers for January this morning and speeches by ECB’s De Guindos and German Bundesbank’s Weidmann later in the day.
Data to watch
09.30 GBP – Final Manufacturing PMI
15.00 USD – ISM Manufacturing PMI