Negative interest rate speculation continues
UK house prices rose by just 0.2% in December, from 1.0% in Nov, and the annual increase fell to 6.0% from 7.6% with expectations that there would be a net slowdown this year. Market attention was on the near-term coronavirus developments, however, with the approval of the Moderna vaccine for UK use overshadowed by fears over rising hospital rates. Sterling was still hampered by low confidence in the near-term outlook and weak underlying fundamentals, especially with the upward pressure on the budget deficit. Also, there was further speculation of negative interest rates from the Bank of England within the next few weeks.
There were further concerns over disruption to trade following the leaving of the customs union, including potential tariffs on re-exporting goods to the EU and short-term disruption to trade flows. The Pound did register net gains against the Euro with a move to near 1.1111, but failed to hold above 1.3600 on the Dollar. A firmer Dollar opens around 1.3500 this morning and the Euro near 1.1080.
US non-farm payrolls declined 140,000 for December compared with consensus forecasts of a 70,000 gain for the month and the first decline since data April when there was a slump in employment of over 20 million. The November increase, however, was revised up to 336,000 from the 245,000 increase reported previously.
There was a sharp decline in employment of close to 500,000 for the leisure and hospitality sector as further coronavirus restrictions took effect.
The unemployment rate held at 6.7% while average earnings increased 0.8% for a 5.1% annual increase as lower-paid workers were laid off.
The data reinforced near-term reservations over the outlook, although there were also expectations that there would be further Administration fiscal stimulus measures.
The dollar initially lost ground following the data before regaining ground as underlying pressure for short covering continued. There was further dollar buying after the European close with the Euro dipping to below 1.2200 from 1.2285 highs before closing just above 1.2200.
The German trade surplus narrowed to 16.4bn for November from 18.2bn the previous month, although the monthly increase in exports was above consensus forecasts at 2.2%. The Euro briefly dropped below the 1.2200 level in recent trade, a move that coincided with the Dollar Index rising to fresh weekly highs.
Having managed to secure an additional 300M Pfizer/BioNTech vaccine doses, the EU’s comparatively slow vaccination efforts that saw its vaccination drive start over a month behind that of the UK and US. This very well could come back to bite EUR in the coming months if a lack of herd immunity on the continent renders them unable to properly reopen their economies as fast as others.
Better than expected German trade numbers and modestly better than expected German and French industrial output numbers released early during Friday’s European session were unable to aid sentiment towards the single currency.
As of writing, the single currency trades around the 1.2195 mark against its US counterpart.