Pound lifted as no-deal risk fades
The Pound held steady yesterday with investors swift to buy on dips in price. CBI industrial orders declined to -1 in January, down from 8 previously and confidence weakened at the fastest pace in 30 months. The Bank of England’s (BoE) Ben Broadbent offered some reassurance on household debt levels but didn’t give any clues to monetary policy in the short term. Chief Economist Andy Haldane stated that further, modest rate hikes are likely if the economy continues to perform in line with the bank expectations.
Speculation grew that parliament would reject a disorderly Brexit as the Labour Party suggested it would back an amendment preventing a ‘no-deal’ Brexit. EU Chief Negotiator Michel Barnier stated that avoiding a ‘no-deal’ outcome meant coming up with alternative plans. The Pound was in demand, breaking above 1.3000 against the Dollar, which triggered fresh short covering (buying Pounds to reverse bets against the Pound), pushing Sterling further to 10-week highs above 1.3070. The Euro rate peaked at two-month highs near 1.1500 and the Pound is looking firm this morning, holding yesterday’s gains.
White House economic adviser Hassett stated that first-quarter GDP growth could be close to zero if the government shutdown continues, although there would be a strong bounce back for the second quarter. He was optimistic that the US and China would reach a deal on trade. The Richmond Federal Reserve (Fed) manufacturing index recorded the second successive negative reading as the headline figure improved to -2 from -8 previously. There was a faster rate of decline in orders, although the employment data remained strong while the pace of cost increases eased for the month.
Later, media reports suggested that the Democrats may grant President Trump his £5billion+ budget request to increase border security. However, those funds are said not to be used to build a wall, but ‘only’ to increase border security.
Eurozone consumer confidence produced its lowest number since October 2016 yesterday which only served to support the theory that consumer spending is on the slide. Against the Dollar, the Euro threatened to break the 1.1400 mark, but retreated back towards 1.1350 as interest in the single currency waned over growth concerns.
Today, all eyes will be on the European Central Bank’s (ECB) monetary policy and their decision, with consensus pointing towards maintaining its current policy after ending Quantitative easing (QE) last December. Draghi confirmed the EU economy is doing worse than expected but insisted that a recession is not a concern.
PMI numbers arE due out of France, Germany, and the Eurozone. After that, the ECB will release its interest rate decision which will be closely monitored.
Data to watch:
24H CHF World Economic Forum – Davos
05:00 JPY Leading Economic Index (Nov)
08:30 EUR Markit Manufacturing PMI (Jan) (Germany)
08:30 EUR Markit Services PMI (Jan) (Germany)
09:00 EUR Markit Services PMI (Jan)
09:00 EUR Markit Manufacturing PMI (Jan)
09:00 EUR Markit PMI Composite (Jan)
12:45 EUR ECB Interest Rate Decision
12:45 EUR ECB Deposit Rate Decision
13:30 USD Continuing Jobless Claims (Jan 11)
13:30 USD Initial Jobless Claims
13:30 EUR ECB Monetary policy statement and press conference
14:45 USD Markit Manufacturing PMI (Jan)
14:45 USD Markit Services PMI (Jan)
14:45 USD Markit PMI Composite (Jan)
N/A USD Senate votes on government shutdown
23:30 JPY Tokyo Consumer Price Index (YoY) (Jan)
23:30 JPY Tokyo CPI ex Fresh Food (YoY) (Jan)
23:30 JPY Tokyo CPI ex Food, Energy (YoY) (Jan)