Good morning,
Stagnant but not solid
UK GDP was revised higher in Q4 of last year to 0.7% from 0.6% at the initial reading matching our belief that the data from the month of November in particular was stronger than that of October. Looking backwards will not help us move forward however and while UK GDP may have gained some momentum into the end of 2016 but recent news from UK seems to have shown that that momentum has been lost in the early weeks of 2017.
So far data from the UK economy has shown that services growth is set to slow, buffeted by rising inflation and slowing real wage gains and a consumer that is not waving but drowning, business investment remains poor given uncertainty over the negotiations between the UK and the EU following the Brexit vote last summer and while trade was stronger on the quarter this is purely a function of the devaluation of the pound.
There was little within this release that suggests either stability or sustainability are intrinsic values of the UK economy anymore. Solidity will be found in the economic reaction to the new political atmosphere that the Brexit negotiations create and we foresee that sterling will remain range bound until that clarity is more apparent.
Brexit back in the ballot box
GBP watchers will be keeping half an eye on the two bye-elections taking place today. We anticipate little market reaction unless both areas that voted overwhelmingly to leave the European Union vote for Liberal Democrat or Green candidates who have expressed an opposition to Brexit.
We also have the latest run of retailing data from the CBI at 11am.
Centre unites against Le Pen
EUR spent most of yesterday rallying both against the USD and EUR with politics acting in a positive manner for once. Centrist independent candidate Emmanuel Macron was handed a boost as François Bayrou threw his hat in the ring in a bid to partner with Macron. It was his decision to not run and therefore not split the centrist vote that boosted the euro as his endorsement is seen as a galvanisation of the anti-Le Pen feeling that will see her lose in the 2nd round of the French election.
Soon-ly but surely
The minutes of the Federal Reserve’s January meeting were unable to keep the dollar supported as markets were left disappointed by policymakers saying they should be ready to lift interest rates again only “fairly soon”. News that the policy committee felt that it could be “some time” before the policy outlook – particularly from the Trump White House – became clearer will not have helped matters either.
Similarly an interview by Treasury Secretary Steve Mnuchin on currency has chipped away at some of the of dollar resolve. Mnuchin told the Wall Street Journal that a “strong USD is good for the US economy in the longer-term. However, “In the short term, there are certain aspects that are positive about the dollar for our economy and there are certain aspects that are not as positive.” He has previously advocated a stronger dollar whilst President Trump has favoured a lower USD to benefit his export and manufacturing based vision.
The Day Ahead
The data calendar is quiet today however the spectre of political risk remains.
Have a great day