Trump Threatens Trade Tariffs
Sterling moved sharply lower yesterday as political events dominated. Former Cabinet Minister Fallon stated that the current Brexit agreement had no chance of being approved and should be re-negotiated. Following President Trump’s trade comments (see below), underlying sentiment deteriorated further and Sterling declined to below 1.2770 against the Dollar.
The CBI retail sales index strengthened to 19 from 5 previously, above consensus expectations, and retailers expected a strong December performance, although there were still underlying concerns with investment remaining vulnerable.
Political fears continued to damage Sterling with markets still seeing no real chance that the Brexit deal would be approved. According to EU’s Barnier, the Brexit deal will be referred back to the European Council if the UK parliament votes against it on December 11th. GBPEUR advanced to 1.1280 despite wider losses while Sterling against the Dollar was held near 1.2750.
Markets will be waiting for the publication of long-term Brexit economic forecasts by the Treasury and Bank of England.
Federal Reserve (Fed) vice-chair Clarida reiterated that gradual rate hikes were appropriate as data shows the way to a neutral policy stance. He also stated that it was especially important to monitor a range of data at this point in the economic cycle. There were also comments that rates were just below the Fed’s longer-term estimates of neutral, although he would back more rate hikes than expected if inflation surprised to the upside.
St Louis Fed President Bullard stated that rates were already at or near neutral and that he expected cracks in the growth outlook to make it more difficult to continue raising rates next year.
After stabilising early in the New York session, EURUSD was undermined by reports that President Trump would announce the imposition of 25% tariffs on car imports from the EU, possibly as early as next week with the rate dipping below 1.1300. There was further evidence of month-end Dollar demand and the US currency maintained a very firm underlying tone with a renewed advance against a basket of other currencies.
As well as the potential tariff by President Trump, the Euro was also hampered by the news that EU governments have reportedly agreed on disciplinary action against Italy over their decision to ignore the EU’s guidelines on the budget deficit. Italian PM Salvini insisted that their government would do anything to avoid disciplinary action but the markets had already demonstrated their concern.
Today sees very little data out of Europe; producer price index figures out of Italy, Swiss ZEW survey expectations and the German 10-year bond auction are the only slight points of interest. Bank of England Governor Carney is giving a speech this afternoon which will be the focus of attention.
Data to Watch:
07:00 EUR Gfk Consumer Confidence Survey (Dec) (Germany)
n/a GBP Financial Stability Report
n/a GBP Bank Stress Test Results
09:00 CHF ZEW Survey – Expectations (Nov)
n/a EUR 10-y Bond Auction
13:30 USD Gross Domestic Product Price Index (Q3)
13:30 USD Gross Domestic Product Annualized (Q3)
13:30 USD Personal Consumption Expenditures Prices (QoQ) (Q3)
13:30 USD Core Personal Consumption Expenditures (QoQ) (Q3)
15:00 USD New Home Sales (MoM) (Oct)
16:45 GBP BOE’s Governor Carney speech
17:00 USD Fed’s Powell Speech
23:50 JPY Foreign investment in Japan stocks (Nov 23)
23:50 JPY Foreign bond investment (Nov 23)
23:50 JPY Retail Trade s.a (MoM) (Oct)
23:50 JPY Retail Trade (YoY) (Oct)
23:50 JPY Large Retailers’ Sales (Oct)