Good morning,
A pause is welcome
As we head into the weekend there are a fair few markets that look ready for a two day break. Sterling is probably the obvious one, following one of the most volatile weeks since the Global Financial Crisis. The pound has actually started regain some of the losses it has been subjected to this week overnight.
Some of this is down to the need for haven assets being reduced by gains in stock markets and an oil price now north of $33 a barrel. There is also an element of polling data around the referendum and the belief that polls released over the weekend, commissioned by the Sunday papers for example, are likely to show the Remain camp with a still sizeable lead.
We can but hope that nothing over the weekend has a similar effect on sterling as Boris’s doorstep admission of a desire to campaign for the UK’s exit from the EU.
UK GDP held at 0.5%
Yesterday’s GDP number was roundly supportive of sterling coming in at 0.5% despite some thoughts, ours included, that a dip to 0.4% could easily be seen. Once again the most important story within the UK’s national accounts is not the level of growth but the makeup thereof. Going into the number we had thought that weaker output numbers from industrial and construction sectors through Q4 would have dragged the overall growth number lower but, once again, consumer expenditure has remained resilient. Thank God for the British disposition to buy anything that isn’t nailed down and to at least offer a few quid for the things that are.
Net trade was also a drag on output although we can but hope that the recent GBP weakness we have seen will allow exporters to gain orders and hedge at currently attractive levels.
The obvious problem with GDP is that it does not give us a present view of the economy and the data takes months to finally bed in. Recent data has been increasingly positive although we have to believe that the next 4 months of bluster and pantomime over the EU referendum will eventually hurt both business investment and consumer spending.
G20 offers little, results in less
News from the G20 meeting in China has been rather thin on the ground although markets in Asia did rally following comments from People’s Bank of China Governor Zhou. Once again he reiterated that he sees no reason for the Chinese currency to fall persistently and, echoing policymakers across the world, that the central bank has room for more monetary policy moves, suggesting possible interest-rate or reserve requirement ratio cuts.
German Finance Minister Schaeuble has already made one of our G20 predictions come true by saying that fiscal reform is what is needed not any new form of fiscal stimulus. To any Greek readers these sentiments will sound very familiar.
The Day Ahead
Friday’s data calendar is dominated by inflation measures from Germany and the United States and the 2nd reading of US GDP for Q4.
Have a great day and a better weekend.