May Disappointed by Bombardier Tariff
Sterling edged lower today against the US Dollar, putting an end to a streak of days of good performance. Theresa May’s problems don’t seem to reach an end as the US Department of Commerce initial ruling said that a large tariff should be imposed on Bombardier jets to be sold to Delta airlines. Bombardier is the largest employer in Northern Ireland and, for May’s political ally, the Democratic Unionist Party (DUP), there are concerns that a heavy tariff may force the manufacturer to fire workers or, even, shut down the plant.
The US president Donald Trump will present the administration plan on the long-awaited tax reform in Indiana. According to media sources, the plan includes a large corporate tax cut and smaller tax reductions for individuals. The Fed’s Chair, Janet Yellen, delivered a hawkish tone speech in Cleveland which helped boost the US Dollar. Yellen said that the Fed shouldn’t move too gradually regarding interest rate hikes, and added that the monetary policy can change even if inflation is not near the 2% target.
Pound Sterling – UK Markets
Today, the Pound fell against the US Dollar, hitting a two-week low, with the exchange rate set at $1.33. Sterling strengthened against the Euro with the exchange rate set at €1.14.
Theresa May expressed her bitter disappointment over the initial Bombardier ruling and added that the UK government will continue to work with the company to protect vital jobs in Northern Ireland. May’s reaction comes after the US Department of Commerce initially decided to impose a 219% tariff on sales of Bombardier C-Series passenger jets to Delta airlines. Boeing had complained that Bombardier received unfair state subsidies from the Canadian government and, as a result, was capable of offering lower than normal prices in the Delta airlines competition.
During her visit to New York, Prime Minister Theresa May met with US President Donald Trump in an effort to convince him to intervene in the dispute between two of the biggest aircraft manufacturers in the world. Bombardier is the biggest employer in Northern Ireland and it is very possible that, if the tariff is imposed, Bombardier will try to cut its costs by reducing the number of workers. May wants to avoid it since the Tories’ ally party is the DUP, which has already vowed to do anything possible to keep Bombardier’s plant in Belfast open.
US Dollar – US Markets
The US Dollar edged up against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY), which measures the value of the Dollar against six major competitor currencies, rose and is now at 93.40. The US currency received a boost after Janet Yellen’s speech in Cleveland yesterday, while markets are expecting to hear from Donald Trump details about the tax reform today.
Yellen said that the Fed may have overstated the labour market’s strength and the inflation rate, which could lead to changes to monetary policy ahead. The Fed’s Chair noted that a regular pace of hikes ahead is still likely warranted and stressed that the central bank should be wary “of moving too gradually.” Yellen said that it would be “imprudent” to wait for the inflation to hit the 2% target, in order to make changes to monetary policy. Her speech had a hawkish tone, which made market expectations for a rate hike in December grow.
The US Commerce Secretary, Wilbur Ross, said that the GDP could rise by 1% if the US administration would get the tax reform right. Ross noted that the plan of reducing individual tax rates and simplifying tax procedures could be used as an incentive to increase productivity. Later in the day, President Trump will unveil his plan to overhaul the US tax system. White House officials and GOP leaders, nicknamed “the Big Six”, worked together on this long-awaited plan, which is expected to include a large corporate tax reduction and smaller tax cuts for individuals.
Euro – European Markets
The Euro continued dropping against the US Dollar, hitting a one-month low, with the exchange rate set at $1.17. Janet Yellen’s speech and political uncertainty in Germany and Spain are taking their toll on the single market currency.
The French President Emmanuel Macron delivered a speech in Sorbonne laying out his vision for the future of the European Union. Macron called for deeper political integration and urged EU leaders to follow the “visionary ideas of the EU founders.” He reiterated the idea for a single EU finance minister, something that could provoke a reaction from the new German government, in case anti-EU political parties are included in it. President Macron said that the EU should consider the creation of a military intervention force and of a common military budget until 2020. The French President said that a larger EU budget would enable the bloc leaders to fund investments and could be used as a cushion against economic downturns.
The Chair of the European Central Bank’s (ECB) Supervisory Board, Daniele Nouy, talked about the Euro-bloc’s banking sector and said that, right now, there is a large number of banks which are competing to make customers trust them. Nouy believes that the banking sector will probably shrink as a result of the fierce competition in the future. In France, consumer confidence ticked lower in September, but in Italy the consumer confidence index came in at 115.5, better than the anticipated 110.8 reading.
Other Currencies – Highlights
Sterling strengthened against the Australian Dollar, trading at 1.70 AUD. The National Australia Bank (NAB) published its Consumer Anxiety Index data which included some interesting findings. Data showed that Australians are less worried about their job security now than a year ago. More than 20% of consumers believe that the cost of living is high and cut back on “non-essential goods.” In other news, Prime Minister Malcolm Turnbull announced that gas companies agreed to a deal that will cover domestic supply needs, so the government won’t have to intervene in the export market.
The Pound fell against the New Zealand Dollar, trading at 1.86 NZD. The Reserve Bank of New Zealand’s (RBNZ) board is meeting today to decide on the benchmark interest rate. Westpac analysts believe that the RBNZ will keep the rate on hold and repeat, in the accompanying statement, that the monetary policy will remain accommodative for a considerable period. An ANZ survey showed that New Zealand’s businesses are cautious about the outlook of the economy over the next year. ANZ economists noted that businesses were also wary, in September, about political uncertainty caused by the general election.
Sterling gained ground against the Swiss Franc, trading at 1.30 CHF. The Geneva-based World Economic Forum (WEF) declared Switzerland as the world’s most competitive economy for the ninth consecutive year. However, WEF economists said that the country is at risk from complacency and populism.