Good morning,
New year, Same fear
Chinese New Year begins today and may we start today’s update by wishing all our readers who will be celebrating it Gong Xi Fa Cai.
With most of Asia downing tools before a long weekend of celebrations the overnight session has been rather slow with most pairs continuing to meander in the well-worn ranges. Needless to say most of the volatility that did emerge yesterday was courtesy of Donald Trump’s ongoing battle with Mexico over trade and the wall.
What flavour of protectionism?
A meeting between the US and Mexican Presidents is now no longer happening after Trump initially tweeted that if the Mexican government didn’t want to pay for the wall maybe there was no point in them visiting Washington. So Mexico called his bluff and cancelled with MXN losing around 1.5% on the session versus the greenback.
Other than that, we have seen little dollar volatility with traders more than willing to hold off and see what shade of protectionism this administration’s trade policy finally turns out to be as murmurings on tariffs and border taxes – which are not the same thing – have left us and the wider market somewhat confused.
Unbalanced UK continues strong growth
The first reading of UK GDP in Q4 proved we were right on the money yesterday as new growth did little to solve old problems. While the preliminary GDP read of 0.6% did indeed beat the median estimate of 0.5%, services grew by 0.8% while construction and manufacturing both stagnated. The UK economy is as lopsided as a one legged horse and growth from consumption, while the bread and butter of the UK economy for a long time, is less dependable than other types of growth and can be less durable.
While the GDP numbers may have a point, the counterpoint was found 90 minutes later as the CBI reported that its index of retail sales volume had fallen to -8 from 35 the previous month and that total sales were down to 26 from 42. These indices can be volatile and there is some seasonality to apportion to the fall but similar increases in consumer credit will make the High Street a real battleground in the coming months. Can the average family continue to shop as if their country’s livelihood depends on it? We think not.
Sterling did little in the aftermath of the announcement given it was roughly in line with expectations.
The Day Ahead
Theresa May’s government has published the short bill on invoking Article 50. Indeed it is so short that it would fit into this morning update three times over. I’ve never been one for brevity and the longer form debates and discussions will begin next week.
May is currently in Washington and will hold a joint press conference with President Trump this evening. The similarities between this and the press conference in Love Actually will likely be few and far between.
The Q4 reading of US GDP is the obvious data highlight of the session with growth expected to slow to 2.2% on the quarter.
Have a great day and a better weekend.