UK retail sales fell by 0.6% in November whereas a 0.3% gain was expected and annual sales growth contracted sharply to 1.0% from 3.1%. The CBI distributive trades index improved to 0 from -3 last time round and marginal growth is expected in January. There was no surprise that the Bank of England held interest rates at 0.75% and the voting remained the same with a second successive 7-2 vote. Saunders and Haskell voted for a 0.25% rate cut which had no impact on the Pound. Additional monetary support might be required if the global economy doesn’t stabilise and of course Brexit uncertainties remain entrenched. If uncertainties dissipate and the economy performs as expected gradual and limited increases in interest rates could be needed. The central bank the reduction US-China trade war tensions provides some additional support to the outlook. The Pound selling continued after a pause to absorb the data.
Boris Johnson reiterated that there would be no extension to the transitional period which maintained hard Brexit fears. The Pound dipped below 1.3000 on the Dollar and the Euro near 1.1695 as long positions (bets on the Pound rising) were flushed out. Sterling is back above the 1.3000 mark this morning as we await the appointment of the new Bank of England Governor and the Withdrawal Bill vote.
The US Philadelphia Federal Reserve (Fed) manufacturing index declined to a 6-month low 0.3 for December from 10.4 the previous month and below consensus forecasts of 8.0. There were, however, stronger readings for new and unfilled orders on the month while upward pressure on costs increased and employment indices remained strong. The components suggested a much more optimistic outlook than the headline release and the dollar held steady.
Existing home sales declined slightly to an annual rate of 5.35mn from 5.44mn the previous month. Overall confidence in the US outlook held firm and futures markets indicated less than a 10% chance of a further cut in interest rates by the end of the first quarter of 2020.
German bonds yields continued to increase, mainly due to optimism for the 2020 Eurozone economic outlook. There was a lack of fresh economic data and the Euro was unable to make any significant headway but it did find support above 1.1100 and settled around 1.1120 as relatively tight ranges prevailed. There was little change this morning as volumes faded and the US data releases are not expected to have a significant impact.
Data to watch:
09:30GBPGross Domestic Product
11:00GBPBoE’s Haskel speech
13:30USDGross Domestic Product Annualized