Italian banks lean like Pisa
U.K. government net borrowing figures declined to £12.6 billion for November, down from £13.2 billion the same time last year. The U.K. deficit for the first 3 quarters of 2016/17 also dipped to £59.5 billion from £67.2 billion, due to exports increasing following the cheaper Pound and the government tightening corporate contributions. Consumer confidence was slightly higher at -7 for December from -8 previously, although reported confidence surrounding the general economic outlook has fallen sharply which may have have an increasing impact in curbing spending.
Ian McCafferty, overlooks a 2017 “slow-motion slowdown” since consumers tackle faster inflationary pressures and importers take a hit in costs as companies become more reluctant to invest. On current performance it would be surprising to see any rise in UK interest rates until at least Q4 next year, if at all. The Pound declined 0.12% versus the USD and closed at 1.2351.
The markets have entered the Christmas period doldrums and trading volumes have shrunk. The usual definition of which is calm or inactivity as opposing trade winds cancel each other out but in nautical terms also includes unpredictable weather with sudden squalls and storms. Seasoned salty sea dogs would advise avoiding if at all possible; and in currency terms this means not leaving payments until January.
The current malaise in the Italian banking sector will continue to draw focus after Monte dei Paschi, the world’s oldest bank, admitted that a private sector rescue was likely to fail. This only reinforces expectations that the Italian government will be forced to intervene with a bailout. Although there will be some concerns surrounding a contagion effect throughout the Italian and Euro-zone banking sector, Italy approved a EUR 20Bn bailout package for it’s struggling banks. Overall yield spreads remained negative for the Euro, although this is priced in to an extent and won’t overly affect the Euro.
The Dollar lost some lustre this morning, slipping as investors took profits before a batch of U.S. economic data due later today. The Dollar’s decline was limited as the Fed signalled more frequent rate hikes in 2017, partly on expectations for faster economic growth under the incoming Trump Administration. The market’s focus is on U.S. economic indicators due today, including revised GDP for July-Sept, durable goods orders for November, and weekly initial jobless claims.
US existing home sales were higher than expected at a rate of 5.61mn in November from 5.57mn and this was the strongest rate since early 2007. There was also an increase in prices and a decline in the number of homes for sale which is likely to have a negative impact on potential 2017 sales.
Data to watch: 9am EUR Economic Bulletin. 1.30pm US Chicago Fed National Activity Index. Initial & Continuing Jobless Claims. Gross Domestic Product Annualized (Q3), GDP Price Index (Q3), Personal Consumption Expenditures Prices & Core PCE. Durable Goods Orders & DGO ex Transportation (Nov). 2pm Housing Price Index (MoM) (Oct). 3pm Personal Income (MoM) (Nov), Personal Income & Spending (MoM) (Nov), Personal Consumption Expenditures – Price Index (MoM & YoY) (Nov) & Core PCE