1st February 2019 Market Update
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🇬🇧 GBP – Data out this morning from the UK came in lower than expected as the UK’s January manufacturing PMI hit a 3 month low of 52.8. This figure can be considered a big miss as the underlying trends in output and orders remain lacklustre as it appears businesses continue to be more wary about the lack of progress on Brexit. And indeed that remains only word on anyone’s lips when it comes to sterling and its fortunes. Following this morning’s PMI’s we have seen Sterling move lower against both the dollar and the euro as the uncertainty around the future of the UK and EU’s relationship continues to be unclear. Linked to this, Foreign Secretary Jeremy Hunt yesterday indicated that the government may require extra time to finalise Brexit legislation ahead of the March 29th deadline as Prime Minister Theresa May seeks “alternative arrangements” to the backstop, while the EU has indicated it has no interest in renegotiation.
🇺🇸 USD – Focus in the US now turns to employment data out later on today, with the majority of the market expecting strong wage figures following better than expected ADP jobs data out earlier this week. That being said, the impact of the government shutdown is creating a level of uncertainty but there remains optimism that the falling unemployment rate and solid average hourly earnings should confirm the solid state of the US economy. As a reminder, this week we saw the Fed keep rates on hold whilst indicating a reduced need for ‘further gradual’ rate rises which has many bullish investors cheering as US stocks are set for their biggest January rally in three decades, while European markets are also in line for their largest monthly gain since October 2015. Looking ahead to the Fed’s likely moves in Q2, Goldman Sachs yesterday indicated that they saw just a 25 percent chance of a rate rise, down from their previous forecast of 55 percent. Moving away from the Fed for a moment, the other key market event for this week was the talks held between the US and China in the Oval Office, after which Donald Trump hinted that further negotiations with President Xi Jinping were next on the agenda, set for later on this month. As a result, the dollar made back some of its losses late last night despite two days of trade talks yielding no concrete agreement.
🇪🇺 EUR – The upside for the euro, despite what has been a soft week for the dollar following this week’s Federal Reserve meeting, seems limited especially following the data we saw out this morning. Indeed out of three of the largest economies in Europe, both Germany and Italy came out lower than expected, while France and the Euro as a whole came out in line. Up next we await the CPI data out for the Eurozone at 10.00am, for which headline CPI should remain unchanged at 1.0%, while core is expected to come out lower than expected. As a result, as if this point needs any further labouring – the prospect of any ECB normalisation continues to be pushed further and further down the road. This is further supported by comments yesterday by the Bundesbank’s and the ECB’s Jen’s Weidmann who presented a very gloomy outlook for Germany in 2019. He explains that the economy was likely to grow ‘well below the potential rate of 1.5 percent’ as bad news for the German economy could continue for a while. Following this, the GBP/EUR rate moved higher into the mid 1.14’s yesterday but has since moved back down following the weak UK PMI data.
GBP: Poor PMI’s for the UK cause sterling to fall lower as we finally see data have its day;
USD: Focus turns to employment data following the (temporary) end to the government shutdown;
EUR: EUR/USD remains resilient despite poor data continuing to pour out of the Eurozone area.
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