Has UK economic growth stalled?
Sterling traded in relative calm on Friday, with little change overall as markets awaited political developments. Michel Barnier, the EU chief negotiator, reiterated that the Withdrawal Agreement would not be re-negotiated, but offered to look at the wording on the compliment slip. Theresa May held talks with Irish Premier Varadkar with no evidence of substantive developments.
Although there were expectations that progress would eventually be made to avoid a ‘no-deal’ outcome, there were also concerns that on-going uncertainty would further undermine business confidence. The Euro was little changed around 1.1430 while the Pound was held just below 1.2950 against the Dollar. May overall asked for parliament to give her more time to secure concessions from the EU while there were limited concessions to Labour Party demands as May ruled out a customs union.
The UK currency was marginally softer in early Europe ahead of the latest GDP and industrial production data with global growth reservations also dampening buying interest amid soft energy prices. Poor GDP figures could well drag us below 1.2900 on the Dollar on fears that economic growth has stalled.
US equities continued to move lower at the Wall Street open as risk conditions remained fragile. US 10-year bond yields also declined further to weekly lows near 2.62% which further eroded US support, but there was only a measured retreat to the 109.65 area as the Dollar still secured a significant element of defensive backing. The US announced that Treasury Secretary Mnuchin and Trade Representative Lighthizer would hold meetings in China on February 14-15th.
San Francisco Federal Reserve (Fed) President Daly stated that a slowdown in the economy to sustainable levels would help lower the recession risks and it was not surprising that higher interest rates had triggered a slowdown in the housing sector.
The Dollar overall secured the strongest weekly advance for six months as it took advantage of vulnerability elsewhere with the EURUSD retreating to the 1.1320 area. There was little change this morning as the US currency index held near six-week highs.
Italian industrial production fell by 0.8%, 1.7% down on the previous month and down 2.5% for the year. Even stronger-than-expected German trade account figures couldn’t help the Euro or confidence in the Eurozone as investment flowed away from the single currency.
German bond yields declined to two-year lows and concerns over the risk of tariffs on EU car exports to the US provided further bad news to the German economy specifically. The Asian session has seen the Euro move closer to the 1.1300 mark versus the Dollar, a two-week low.
Data today sees Swiss CPI numbers but the main news will be GDP numbers out of the UK for Q4. Today also sees manufacturing production, industrial production and business investment out of the UK but the rest of Europe is fairly quiet.
Data to watch:
24H EUR Eurogroup meeting
07:30 CHF Consumer Price Index (YoY) (Jan)
09:30 GBP Gross Domestic Product (YoY) (Q4)
09:30 GBP Gross Domestic Product (QoQ) (Q4)
09:30 GBP Manufacturing Production (YoY) (Dec)
09:30 GBP Manufacturing Production (MoM) (Dec)
09:30 GBP Industrial Production (MoM) (Dec)
09:30 GBP Gross Domestic Product (MoM) (Dec)
N/A USD Unit Labor Costs (Q4)
21:45 NZD Electronic Card Retail Sales (MoM) (Jan)