British Economy Beats Expectations
Sterling gained ground against the US Dollar and the Euro in the last day of the week before the Christmas holiday. Prime Minister Theresa May and Chancellor Philip Hammond were glad to read a report by the Office for National Statistics (ONS) which indicated that the British GDP expanded by 1.7% in the third quarter of the year, surpassing expectations. Data showed that the UK’s economy has expanded for nineteen quarters in a row.
In the US, a federal government shutdown was averted when the Congress passed a temporary spending bill that delays a shutdown until the end of January. President Trump accused Democrats of trying to distract citizens’ attention from the passing of the tax reform bill. In Europe, the Spanish stock market tumbled as separatists gained control again of the majority in the Catalan parliament, embarrassing the Spanish Prime Minister Mariano Rajoy.
Pound Sterling – UK Markets
Today, the Pound inched higher against the US Dollar with the exchange rate set at $1.33. Sterling edged up against the Euro with the exchange rate set at €1.12. The ONS published data regarding the British GDP in the third quarter of the year, total business investment and current account.
The ONS survey showed that the British GDP expanded by 1.7% in the third quarter of the year, on an annualised basis. The result exceeded economists’ expectations who had been anticipating a 1.5% rise. On a quarterly basis, the GDP rose by 0.4%, in line with City analysts’ expectations. The ONS report mentioned that the biggest contributor to the rise are services followed by production.
Total business investment increased by 1.7% in the September quarter, on an annualised basis. Economists noted that the result was far better than the 1.3% figure recorded in the second quarter of the year. According to the ONS, the index of services surged by 0.3% in the three months to November. The UK’s current account deficit declined in the third quarter to £22.78bn. Economists had forecast a decline to £20.20bn.
US Dollar – US Markets
The US Dollar rose a little against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY) edged higher with a figure of 93.35. Later today, the US Bureau of Economic Analysis will release the monthly and annual Core Personal Consumer Expenditure readings.
The US third Quarter GDP figures revealed that the country’s economic growth increased at its fastest pace in more than two years. The 3.3% reading slightly surpassed expectations of a figure of 3.2%. The increase was fuelled by robust business spending including growth in business investment which was increased to 10.8 from 10.4, marking its quickest increase in three years.
The Labour Department unemployment figures show the US labour market is near full employment. Last week, initial jobless claims remained below 300,000 for the 146th straight week. This is the longest stretch of figures indicating a strong labour market since 1979, when the market was considerably smaller. With an additional 228,000 jobs added in November, the US jobless rate of 4.1% is at a 17-year low.
The US Senate has passed legislation to avert a federal government shutdown by narrowly passing a temporary spending bill that delays a shutdown for another month. Congress had a deadline of midnight on Friday to pass the “continuing resolution” to keep the government running. On Thursday, the president accused House Democrats of orchestrating “a shutdown for the holidays in order to distract from the very popular, just passed Tax Cuts.” The bill delays resolving heated issues such as healthcare reforms and immigration policies until Congress reconvenes in January.
Euro – European Markets
The Euro fell against the US Dollar with the exchange rate set at $1.18. The Euro dropped as a result of the victory of the Catalan separatists in the regional elections, which was an outcome that didn’t satisfy financial markets. Data indicating the good condition of the French and German economy dominated the financial news in the Euro-bloc today.
GfK published its consumer confidence survey for January with the index reading coming in at 10.8, in line with expectations. The survey asks consumers to rate the level of past and future economic conditions. The 10.8 figure is a three-month high with analysts noting that the political turmoil didn’t seem to affect consumers. Still in Germany, import prices grew by 2.7%, on an annualised basis, in November, as analysts had anticipated.
In France, the country’s GDP expanded by 0.5%, on a quarterly basis, in the third quarter of 2017. Consumer prices in the second largest economy of the Eurozone rose by 2.2% in November, on a month-to-month basis, beating analysts’ expectations. Preliminary data released by the European Commission showed that consumer confidence in the Euro-bloc increased in December by 0.5 points, without, however, any precise explanation of why this happened.
Other Currencies – Highlights
Sterling slumped against the Australian Dollar, trading at 1.73 AUD. Deutsche Bank published a report which said that Australian wage growth and inflationary pressures will remain weak. This would force the Reserve Bank of Australia (RBA) to abstain from increasing its interest rates. Analysts said that a solid increase in wage growth is expected when the unemployment rate reaches the 5% mark.
The Pound edged up against the New Zealand Dollar, trading at 1.90 NZD. Fergus McDonald, a Nikko AM bond manager, believes that the Reserve Bank of New Zealand (RBNZ) will hike its interest rates in 2018, despite its forecast. According to McDonald, this will happen because the possibility of an upward inflation surprise is increasing. In his article, he also stressed that a rent hike in the Auckland area should be expected.
Sterling gained ground against the Swiss Franc, trading at 1.32 CHF. The KOF Swiss Leading Indicator came in at 111.3 in December, surpassing expectations.