Britain’s Trade Deficit Worsens in the Fourth Quarter
Economic news across the globe has quietly picked up pace today, this is amidst global growth concerns which came to the fore in the wake of recent market turmoil. In the UK, the just out economic data revealed that the nation’s trade deficit with the rest of the world widened in the fourth quarter, likely dragging on economic growth. Meanwhile, figures also showed that the UK trade gap in December narrowed more than estimates.
This morning also saw a raft of relatively unimpressive German data. German factory output unexpectedly contracted in December and the nation’s trade surplus narrowed far more sharply than had anticipated. Later, the NFIB’s small business optimism and JOLTS job opening numbers are scheduled for release in the US.
Sentiment for Sterling remains subdued this morning, with the Pound – US Dollar currency pair trading in a close range amid recent market turmoil and tepid recovery in oil prices.
On the macroeconomic front, data published just now indicated that Britain’s total trade deficit narrowed more than market estimates for December. The improvement in the December trade figures was attributed to weakness in oil prices, which has at least benefited the UK, as a net importer, with lower imports of crude behind much of the improvement during the month. However, as a whole, UK’s total trade deficit widened in the fourth quarter to record its largest trade gap since the beginning of 2015. Trade likely dragged on economic growth in the final months of 2015, despite improving in December. In separate data released earlier today, the British Retail Consortium’s (BRC) retail sales monitor posted an impressive reading which lent some support to the pair. The BRC revealed that the annual UK retail sales growth was at a four-month high in January, signalling higher consumer confidence, despite a gloomy global economic outlook.
US Dollar – US Markets
This morning, the greenback has marginally recovered from the previous session’s sharp losses against the Euro. Although, it appears that the US Dollar will struggle to make huge gains against the major currencies as investors continue to focus on deteriorating market sentiment that still remains at play and thus dampening the appeal of the greenback.
Traders now look forward to a set of US economic releases, due later today, that will shed some light on the health of the nation’s job market. Yesterday’s January update of the Federal Reserve’s (Fed) Labour Market Conditions Index posted its weakest reading since last April, echoing Friday’s headline data on employment numbers which showed weaker growth. Given the deceleration in non-farm payrolls, today’s update on job openings for December is likely to show that the openings trend has weakened relative to July’s peak. Also, the National Federation of Independent Business small-firm optimism index is anticipated to fractionally decline for January. Separately, US wholesales inventories data will also be on tab today.
Euro – European Markets
Earlier today, the latest German economic data signalled that the health of the Euro zone’s powerhouse economy in the final months of 2015 was a matter of particular concern amidst global economic slowdown pressures. Data showed that German industrial production unexpectedly fell in December to end 2015 on a disappointing note. The figures indicate that the German industrial sector had its strongest decline since August 2014 on the back of a drop in production in the energy and construction industries. Also, slower growth overseas likely weighed on companies’ sentiment. The pullback came at a time when record-low unemployment and low inflationary pressures could have bolstered consumer spending in Germany. Separately, German trade surplus narrowed in December as exports fell, while imports also dipped lower.
However, the Euro nudged lower against the Pound in response to dismal German economic data, indicating that the Euro traders will continue to focus on market sentiment and oil prices movement for cues on further direction.
Other Currencies – Highlights
The Aussie Dollar moved away from the previous rebound and turned lower against the greenback amid falling global equities. This was fuelled by doubts whether the lower interest rate regime adopted by several central banks in the recent months would help spur growth in economies across the globe. Earlier today, the Aussie currency extended its losses against the US Dollar after the National Australia Bank's (NAB) business survey delivered soft numbers for January. NAB’s business conditions eased in January, to record its lowest reading since April last year, but it remained consistent with the long-run average, suggesting that the fundamental conditions in the non-mining economy were resilient. Also, business confidence weakened, but still stayed in positive territory for the previous month, in the wake of recent turbulence in the global financial markets.
Going forward, investors will likely focus more on news in the US economy as most of the Asian markets remain closed this week for the Lunar New Year celebrations. Any data which is in favour of a March interest rate rise by the Fed will mostly trigger volatility in the currency pair.