Today’s rate @ 08:00 1.1448
Morning Report 15.11.2018
Moneycorp Dealer Team,
The Battle of the Brexit Bill
A bit jumpy
The prime minister said yesterday that her draft Brexit bill is “the best that could be negotiated”. Although investors were inclined to believe her, they suspect Parliament might not. And it is not only Commons approval that looks uncertain; Theresa May’s survival as prime minister is on the line.
A five-hour cabinet meeting, a drip feed of rumour and a nervous prime ministerial statement all contributed to a febrile day for sterling. Cable covered a cent-and-a-half range three times before winding up back where it had begun. The pound starts this morning a fifth of a US cent firmer on the day and a quarter of a cent lower against the euro.
There was little reaction to the raft of UK inflation data. The consumer price index was up by an annual 2.4%, unchanged on the month and a tick below forecast, and retail price index inflation was steady at 3.3%. Investors glanced at the data then quickly turned their focus back to the far more gripping Brexit drama.
In the same third quarter for which Britain reported 0.6% growth in gross domestic product, the eurozone managed just a 0.2% expansion and Germany’s economy shrank by 0.2%. The slower growth in Euroland was in line with forecasts while Germany’s figure was slightly worse than the forecast 0.1% shrinkage.
The German reading weighed on the euro for a couple of hours until investors were reassured that the numbers from Euroland were not also below target. Eurozone industrial production was, in fact, better than expected, falling by only 0.3% in September. The euro eventually added two-fifths of a US cent on the day.
The headline rate of US inflation came in at an uncontroversial 2.5%, unchanged on the month. Of greater interest to the dollar was an appearance by Federal Reserve chairman Jay Powell. His comments were interpreted by some as an acknowledgement that the US economy could be moving towards slower growth.
Today’s rate @ 08:00 1.1448
Britain and the States will both be reporting on October’s retail sales today. Tomorrow brings the finalised figures for Euroland inflation. And at any moment the chairman of the Conservative back-benchers’ 1922 Committee could announce a confidence challenge to Theresa May’s leadership – or not.
Unless they are in some way sensational the UK retail sales data will receive no more than a glance from investors. The Battle of the Brexit Bill is far more exciting, especially now that the Labour party has said it will oppose the legislation in Parliament. The US figures, similarly, will provide only a temporary diversion; investors remain confident of one more Fed rate hike this year and two, maybe three, in 2019.
Figures already released today showed Australia’s employment rate holding steady at 5.0% as the number of people in work increased by 33k in October. All of them were full-time jobs. The data gave a boost to the Aussie, which is a cent higher on the day.
Weekly Brief – 9th November 2018
EUR weekly currency update
Italy and the EU remain locked in a battle about Rome’s proposal to run a 2.4% budget deficit in 2019. Italy’s government claims the deficit will narrow over time as the economy grows. Brussels says it won’t, and the last week’s data show why the EU is concerned. The Italian economy did not expand at all in the third quarter, while purchasing managers’ index readings for manufacturing and services both slipped into the contraction zone in September and retail sales fell. On a more positive note, the European Central Bank’s Economic Bulletin was quite upbeat; Reuters summarised it as “Euro zone consumption resilient, labour market strong”.
It was still not a great week for the euro though. It lost three quarters of a US cent and went down by more than a cent against sterling. The pound was supported by a stream of leaks, stories and rumours about a Brexit deal being put before parliament before the end of the month.