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Mind the gap! Trade deficit widens

Mind the gap! Trade deficit widens

GBP
UK industrial & manufacturing production rose 0.4% in November, in line with consensus forecasts. The manufacturing data also showed annual growth of 3.5%. The trade deficit caused concern, printing wider than expected this month, maintaining underlying Sterling vulnerability although exports maintained a firmer underlying trend. NIESR estimated GDP growth increased 0.6% in Q4 2017, above consensus forecast of 0.5% which bolstered confidence in overall growth trends.

Sterling was subdued by a reduced market risk appetite and there were also fears that stresses in global bond markets would make it more difficult for the UK to finance its current account deficit with net losses over the past 24 hours. The Pound recovered from below 1.3500 against the Dollar but failed to hold above 1.3550.

Sterling opened at 1.3487 against the Dollar while the Euro made net gains to open at 1.1298. With today’s credit conditions survey the only data this week, attention is still focused on Brexit negotiations and next Tuesday’s inflation data.

USD

US export price index yesterday fell to 2.6% y/y while the US import price index remained firm, dropping 0.1% to 3.0% y/y for December. Further, EIA crude oil inventories fell 4.9 million but left stocks above consensus forecasts. This data, however, was not enough to interest investors and traders.

Yesterday, rumours surfaced that Chinese officials reconsidered their US Treasuries purchase programme after recommendations that the buying of Treasuries should be reduced. This caused concerns for the Dollar as a dip in capital inflows sent it weaker against the Euro as levels rose to the 1.2000 area. With no immediate response from Chinese officials, the Euro gains reversed as traders used this opportunity to unwind long positions.

Chicago Fed President Evans, in a speech yesterday, reiterated his view of waiting for inflation rates to rise before raising interest rates which he expects to be around the middle of 2018. In contrast, Dallas head Kaplan stated that the Fed must be careful, given recent events of tax cuts, that the economy does not overheat and that cyclical inflation pressures were building.

EUR

Yesterday, the only Euro news was that the German 10-year auction Bond auction was under-subscribed, spooking investors. Today, the Eurozone industrial production is expected to accelerate to 0.8% m/m in November. Eurozone European Central Bank (ECB) Monetary Policy Meeting Accounts will be published after lunch and EUR crosses could react to this data.

Data To Watch:

09:30 GBP BOE Credit Conditions Survey
10:00 EUR Industrial Production s.a. (MoM) (Nov)
10:00 EUR Industrial Production w.d.a. (YoY) (Nov)
12:30 EUR ECB Monetary Policy Meeting Accounts
13:30 USD Initial Jobless Claims (Jan 5)
13:30 USD Continuing Jobless Claims (Dec 29)
19:00 USD Monthly Budget Statement (Dec)
20:30 USD Fed’s William Dudley speech

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