Global Markets Drop After Spain Attacks
The brutal terrorist attacks in Spain that killed 13 people and injured 100 more people in Las Ramblas and Cambrils have caused sell-offs across global stock markets. Wall Street reacted to both the attacks and increasing concerns that President Trump won’t complete his economic stimulus plans. Worries about how the attack would affect tourism caused investors to sell shares in airlines as the impact of the atrocities hit European markets.
The Euro sank to a three-week low after the European Central Bank (ECB) minutes reveal the ECB is very cautious about unwinding their monetary stimulus programme. In the minutes of the 20 July meeting, monetary policymakers expressed concerns that the Euro’s value could become overly inflated.
Pound Sterling – UK Markets
Today, the Pound is holding steadily against the US Dollar with the exchange rate at $1.28. Sterling slightly recovered from a steady decline against the Euro, rising to €1.09.
Sterling didn’t get much of a boost against the US Dollar yesterday, after the Retail Sales release, because, although the news was better than expected, it revealed worrying trends in UK household spending. Consumers have been critical to the UK’s economic growth, but rapidly rising inflation and Brexit uncertainty have caused a decline in all retail categories, except food sales. Although unemployment is at a four-year low, real incomes have dropped by 0.5% in the second quarter of the year. The 2.6% inflation rate recorded in July is expected to peak this year, rising just slightly, which might mean that British consumers won’t see prices climb much higher than they already are.
More than half of British shoppers are making efforts to cut costs according to a Nielson survey published yesterday. 30% of respondents say they are choosing cheaper brands at the market and 27% are saving money on gas and electricity. A quarter said they are spending less on new clothes and cutting down on take-away meals in effect to pinch their pennies. This marks the highest proportion of efforts to reduce spending in two years. It contrasts sharply with the record-low levels of cost cutting efforts that were measured following the Brexit vote, which triggered increased consumer spending in 2016.
US Dollar – US Markets
The US Dollar slipped against all major peers on political uncertainties. The terrorist attacks in Spain weakened the Dollar further as investors retreated into safe haven currencies like the Swiss Franc and Japanese Yen.
The US Dollar Index (DXY), which measures the value of the US currency against six major currencies, is down by 0.21% coming in at 93.46.
The Dollar began this week on a firmer footing which it lost on Wednesday after the Federal Reserve signalled it would be divided on the prospect of raising interest rates in December. On the same day, investors weighed the possibility that Trump’s stimulus plans were less likely after two CEO advisory were disbanded. There is a strong sense that neither the business community nor lawmakers will ally themselves with the increasingly controversial president. Wall Street stocks fell on rumours that Trump’s National Economic Council director, Gary Cohen was also leaving because he, too was upset by the president’s reaction to Charlottesville violence. The White House was quick to dismiss this, preventing what threatened to become a stock market crash.
The US Labour Department data released yesterday showed that US jobless claims fell to the lowest level since February when the rate had been the lowest since the early 1970s. For the week ending 12 August, 232,000 people applied for unemployment benefits which was an improvement on the 240,000 which had been expected. Continuing jobless claims also fell by 3,000, bringing the total of continuing claims down to 1.953 million for the week ending 4 August. The report indicates that business managers are hiring more staff and retaining employees, although wage growth isn’t increasing. The low 1.4% unemployment rate is boosting consumer spending which rose to the highest levels in seven months in July. Consumer optimism continues to support the US economy’s long-term growth.
Euro – European Markets
The Euro rose by 0.18% against the US Dollar, lifting to $1.17. Euro lost 0.17% of value against the Pound following the release of the ECB’s July meeting minutes. The exchange rate today is set at 0.91 GBP.
Spanish police continue searching for the terrorist who drove a van into a throng of tourists who filled Barcelona’s most famous avenue in Las Ramblas. Police thwarted a second attack in Cambrils, where seven people were injured including one police officer. So far, eight people are believed to be involved in the worst terror incident in Spain since the 2004 Madrid bombings. These types of low-tech attacks, using cars or vans as weapons, which have been carried out recently in London, Stockholm and Nice are now becoming an established tactic by extremists which has proven very difficult to prevent.
The Euro plummeted to a three-week low against the US Dollar after it had recently reached a two-and-a half-year high against the US currency. The Euro’s strength was a concern for the ECB, because it lowers inflation, which the central bank has been trying to raise with its monetary stimulus programme. The stronger single market currency was also trimming export growth, an important aspect of the Eurozone economy, especially for countries like Germany. The EBC has decided not to make any changes to their monetary policy that could raise the risk of the Euro strengthening.
Other Currencies – Highlights
Sterling slipped against the Australian Dollar, trading at 1.64 AUD. Australia’s unemployment rate dropped to 5.6% in July, after June’s figures came in at 5.7%. The trend of an increase in jobs which has lasted for 10 months in a row has been the longest period of jobs growth since 2010. Wage growth for private sector workers, according to the Bureau of Statistics, has fallen for the 20th consecutive month. Australian economists believe that the labour market will continue adding jobs and that this fall in unemployment might “cushion” workers who are facing growth rates at a record low of 1.9%. Almost 240,000 jobs have been created in the last 12 months, with full time jobs beginning to reverse the trend of employers preferring to hire part time employees.
The Pound has fallen against the New Zealand Dollar, trading at 1.76 NZD. Kiwi has also strengthened against the Euro, exchanging at €1.60 and the US Dollar, trading at 0.73 NZD. Both the Kiwi and the Australian Dollar have benefitted as tensions fade between the US and North Korea. The decrease in the likelihood that the US is poised to raise interest rates in December has also helped transform the New Zealand Dollar. This week, Kiwi has gone from being one of the month’s weakest performing currencies into one of the week’s stronger rising currencies. Kiwi is very likely to continue gaining strength if investors’ confidence continues, because it is a high-yielding currency, due to the Reserve Bank of New Zealand’s high basic interest rates.