3rd January 2019 Market Update
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🇬🇧 GBP – UK Prime Minister Theresa May will hope to speak to a number of EU leaders this week, including German Chancellor Angela Merkel and European Council President Donald Tusk in a hope to gain some further assurances on her current deal. In the meantime, the UK remains in a state of flux which is causing companies to hold back on spending and severely undermining their ability to make plans going forward. Linked to this, the British Chamber of Commerce reported the slowest sales growth for firms in nearly two years in the final three months of 2018 as the overall UK economy begins to slow. This uncertainty is also the cause for yesterday’s upbeat PMI figures which were driven largely by businesses seeking to stockpile goods in advance of any border delays or increase in prices following a possible no-deal in Brexit in March. As such, Sterling has started the year very much on the backfoot which could well set the tone for the next few weeks. It was also heavily affected by what analysts are calling a ‘flash crash’ which caused investors to pile into the Dollar’s relative safety late last night [see below].
🇺🇸 USD – Late last night, Apple – the world’s largest tech company lowered its revenue targets for Q1 2019, blaming the overall economic weakness in China as the main cause for the fall in demand for Apple products. Their forecasts were taken by investors as a signal to pull money out of China and instead invest in safer assets such as the Dollar and the yen which both soared late last night. This was following a day in which the Dollar outperformed as investors appear to be taking a ‘wait-and-see’ approach amidst slowing global growth and volatile equity markets. Looking ahead today, the key events in the US include the release of jobs figures in the US private sector which are expected to be in line with previous levels. As well as this, ISM Manufacturing PMI is set to drop from 59.3 to 57.9 which could help to slow the Dollar’s surge. Separately, the US government shutdown looks set to continue for ‘as long as it takes’ as President Trump hopes to use his Homeland Security officials to explain to congressional leaders the need for a border wall as he refuses to drop his demand for $5bn in funding.
🇪🇺 EUR – The Euro also suffered yesterday alongside Sterling after manufacturing activity contracted in the region’s largest economies including Spain, France, Italy and Germany – sending the Euro 1.1 per cent lower. Part of this was due to factory activity which has weakened across much of Europe and Asia as the US-China trade war and slowdown in demand has undermined production, therefore providing little reason for optimism. In addition, it was not a good start to the year for Italian banking as yesterday, the ECB appointed three temporary administrators to take charge of Italy’s Carige bank in an effort to save the struggling lender after it failed to raise any new capital. This latest move is a continuation of an overall worsening sentiment towards the Italian banking sector which in turn is indicative of the struggling economy both in Italy, and the Eurozone as a whole – it is because of this we have seen an increase in anti-elite sentiment and disenchantment with the European Union. Given this is a European Parliament election year, voters across the bloc will go to the polls in May as part of which, expectations are that we may see a greater number of nationalist parties emerge.
GBP: Ongoing Brexit uncertainty hitting UK businesses and their ability to plan for the years ahead;
USD: Dollar doing well off the back of safe-haven currency flows;
EUR: Struggling European manufacturing sector keeping the Euro very much on the backfoot.
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