Tories cling on
Headline UK CPI inflation declined to 2.1% in December, down from November’s 2.3%, and the core rate modestly beat market expectations with 1.9%, up from 1.8%. Bank of England (BoE) Governor Mark Carney stated that the Pound’s current support appeared to indicate that markets were pricing in a lesser risk of a ‘no-deal’ Brexit occurring. Sterling volatility dropped during European trading hours as the markets waited for the no-confidence vote in the government. The Pound was supported below 1.2850 on the Dollar and modestly gained on the Euro.
The government achieved a narrow victory in the no-confidence motion tabled by the Labour party and Theresa May pledged to hold talks with opposition members, encouraging the Pound to creep higher. Jeremy Corbyn has declined to join talks until a no-deal Brexit is ruled out and speculation mounted that May’s plan B would look very much like plan A.
Overnight the headline RICS house price index declined to -19 from -11 previously, while sentiment for the next quarter dropped to 20-year lows. Sterling sentiment was resilient based on expectations that parliament would reject a ‘no-deal’ Brexit or delay the EU withdrawal date. Sterling opens around 1.2870 against the Dollar and around 1.1300 on the Euro.
The partial US Government Shutdown continues and is starting to have ripple effects on the US economy.
US import prices declined 1.0% for December following a 1.9% decline the previous month with an annual decline of -0.6%. The NAHB housing index strengthened slightly to 48 for January from 56 previously and was slightly above consensus expectations. According to the Federal Reserve (Fed) Beige Book, activity expanded in eight of the US districts and all reported very tight labour markets. Many districts, however, stated that contacts had become less optimistic due to rising short-term interest rates together with elevated trade and political uncertainty. The data maintained expectations of a more cautious Fed stance in the short term and the Euro settled just below the 1.1400 level.
There has been no declaration of a truce in the trade war between the US and China, many Homeland Security employees are still working without pay, and civilian government employees are seeking alternate employment and sources of income. The Dollar is still up on the Euro, which was weighed down on by a near-recession in Germany.
Minneapolis Fed President Kashkari reiterated his opposition to interest rate hikes unless there was wage-growth inflation. Trade remained an important focus with comments from Senate Finance Committee Grassley that President Trump was inclined to impose new tariffs on autos in order to force EU negotiation.
Confidence in the growth outlook remained very much muted across the Eurozone which in turn meant that the Euro struggled to make any headway during trading. Many are of the opinion that European Central Bank (ECB) interest rates will not be raised before mid-2020 which also hindered the Euro.
Versus the Dollar, the Euro struggled to break the 1.1400 barrier but yesterday saw the single currency hit the 1.1300 level versus the Pound, albeit very briefly.
Data today sees Italian trade balances and CPI numbers out of Europe. The market will take an interest in these numbers to see if they confirm the fears that the Eurozone is slowing down. The fallout from the result in the vote of no confidence will, inevitably, dominate the news.
Data to watch:
24H EUR G20 Meeting
00:00 AUD Consumer Inflation Expectation (Jan)
00:30 AUD Investment Leading for Homes (Nov)
00:30 AUD Home Loans (Nov)
03:20 JPY Bank of Japan Governor Kuroda Speech
10:00 EUR Consumer Price Index (YoY) (Dec)
10:00 EUR Consumer Price Index – Core (YoY) (Dec)
10:00 EUR Consumer Price Index (MoM) (Dec)
10:00 EUR Consumer Price Index – Core (MoM) (Dec)
13:30 USD Initial Jobless Claims (Jan 11)
13:30 USD Continuing Jobless Claims (Jan 4)
13:30 USD Philadelphia Fed Manufacturing Survey (Jan)
15:45 USD Fed’s Quarles speech
21:30 NZD Business NZ PMI (Dec)
23:30 JPY National CPI Ex Food, Energy (YoY) (Dec)
23:30 JPY National CPI Ex-Fresh Food (YoY) (Dec)
23:30 JPY National Consumer Price Index (YoY) (Dec)
23:50 JPY Foreign investment in Japan stocks (Jan 11)