Labour prizing open the UK’s wallet
The UK government borrowing requirement widened to £11.2bn for October from £8.9bn the previous year while the 7-month deficit increased to £46.3bn from £42.0bn as spending growth outpaced the increase in receipts. Sterling secured gains early yesterday with highs near 1.2970 against the dollar while the Euro hit 1.1680. The UK currency failed to hold the gains and dipped significantly weaker into the European close with notable selling interest again on the approach to 1.3000 against the dollar. There were no positive influences from global risk conditions.
The Labour Party manifesto commitments to very substantial spending increases generated some unease over medium-term fiscal policy and one-month volatilities also continued to increase on political risks. Sterling dipped to 1.2900 against the dollar while against the Euro dropped to 1.1620.
US jobless claims were unchanged at 227,000 in the latest week and above consensus forecasts of 219,000. The Philadelphia Federal Reserve (Fed) manufacturing index increased to 10.4 for November from 5.6 and above consensus expectations of 8.0. The new orders index slowed to 8.4 from 26.2 while inventories declined. Employment growth slowed, but remained at a solid pace while prices increased at a slower pace. Companies remained optimistic over the outlook which offered reassurance.
Cleveland Federal Reserve President Mester stated that there is no sign at this stage that manufacturing weakness is spreading to the wider economy, although risks were tilted to the downside and would re-evaluate policy if there were signs of weakness in hiring or consumer spending. The dollar regained some ground and the Euro retreated towards 1.1050 as narrow ranges continued to dominate.
According to the minutes from October’s ECB meeting, the latest economic data raised questions as to whether weakness would continue for longer than expected in September. There was also, however, a call for patience to allow September’s measures to work through the economy. With a wait and see approach, appropriate at this juncture.
Eurozone November consumer confidence improved slightly to -7.2 from -7.6 previously. Although German yields moved significantly higher yesterday, the Euro was unable to break the 1.1100 figure and gradually retreated during the US trading session. Eurozone PMI business confidence data is due for release today alongside a speech from ECB President Lagarde, both will be important for the Euro sentiment with the common currency potentially vulnerable if PMI data fails to indicate a recovery.
Data to watch
08:15 – EUR – French Flash Services PMI
08:15– EUR – French Flash Manufacturing PMI
08:15 – EUR – ECB President Lagarde Speaks
08:30 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
09:00 – EUR – Flash Manufacturing PMI
09:00 – EUR – Flash Services PMI
09:30 – GBP – Flash Manufacturing PMI
09:30 – GBP – Flash Services PMI
14:45 – USD – Flash Manufacturing PMI