May Reshuffles Cabinet
The Pound is holding onto recent gains made against the Euro and the US Dollar today, with few economic releases due out at the start of the week. Over the course of today and tomorrow, prime minister Theresa May will reorganise around a quarter of her cabinet staff in a political re-shuffle. Yesterday, in a BBC interview, May said that she will be making changes to her team of ministers, following the resignation Damian Green in December. In May’s third reshuffle of her cabinet since becoming prime minister in July 2016, she is expected to promote more women to her top team.
The US Dollar is recovering slowly after Friday’s disappointing release of the Nonfarm Payrolls showed that fewer new jobs were created than had been expected. Wage growth continued rising by 2.5%, and it is expected to inch up higher as the US labour market appears to be at maximum employment. Members of the Federal Reserve (Fed), have shown opposing reactions to planned interest rate hikes in light of the jobs report. Cautious Fed members hope for no more than two interest rate hikes, while the suggestion of as many as four hikes was also made.
Pound Sterling – UK Markets
Sterling has fallen very slightly against the US Dollar, with the exchange rate set at $1.35. Sterling remains resilient against the Euro, exchanging at €1.12.
Today, prime minister Theresa May will be appointing a new first secretary of state and Cabinet Office minister to replace Damian Green who worked in the role of her deputy minister. Speculation is rife as to who may be promoted or replaced ahead of the spring elections. May is expected to re-organise about a quarter of her cabinet in the strongest assertion of her authority, since her decision to call for a snap general election last year.
UK housing prices dropped by 0.6% in December, according the today’s release of a survey by Halifax bank. This is the first monthly decline in house prices in six months. Over 2017, house prices rose by only 2.7%, compared to the same period a year earlier. However, the market cooled off in the last quarter of the year, with the growth rate slowing to 1.3%. Halifax’s managing director, Russel Galley said the decline was caused by “a squeeze on wage growth and continued uncertainty over the economy.” Looking ahead, he said that this year’s house price growth will “continue in the range of 0-3% at the end of 2018.”
US Dollar – US Markets
The US Dollar is picking up a little of the ground it lost last week, exchanging against the Pound at $1.35. The US Dollar to Euro exchange rate is set at €0.83. The US Dollar Index (DXY) has climbed higher to 92.28.
Friday’s Nonfarm December Payrolls fell short of expectations, by revealing that only 148,000 new jobs had been created when many expected a figure of over 190,000. This slowdown in new jobs, from November’s increase of 252,000 was, in large part, due to the retail sector shedding 20,000 positions. The only positive note in the jobs report was that wage growth continued at a 2.5% annualised rate. Previously in the week, the Labour Department’s Initial Jobless Claims for the last week in December also failed to meet expectations, by rising to 250,000 jobless persons when it had been expected to fall to 240,000 new claims.
Cleveland Federal Reserve (Fed) Chair, Loretta Mester, said that she sees the disappointing Nonfarm Payroll report as “a strong report.” She says it indicates that the US is “basically at maximum employment from the view of monetary policy,” adding that is “doesn’t mean it triggers a necessary reaction.” Mester, seen as one of the more hawkish members of the central bank, says that she would be happy to see as many as four interest rate hikes this year. Earlier on Friday, her fellow Fed president, Philadelphia’s Patrick Harker, said that he would prefer just two interest rate hikes in 2018.
Today, two Federal Reserve members are scheduled to give speeches, indicating their views of the US economy and their sentiments on interest rate hikes. During the week, three more Federal Reserve members will also have speeches. The biggest economic release for the US this week is on Friday in the form of the Retail Sales and Consumer Price Indices.
Euro – European Markets
The Euro is trading lower against the US Dollar, with the exchange rate set at $1.20. The Euro also lost a little strength against the Pound, exchanging at £0. 88.
Eurozone investor optimism is at its highest levels since 2007, according to research group Sentix. Their monthly survey gauging investor confidence jumped from 31.1 in December to 32.9 for January. Sentix noted the upturn is “broad and synchronous.” They also warned: “The likelihood of possible overheating is rising.”
Other positive Eurozone releases include a better than expected December Services Sentiment of 18.4. Industrial Confidence also surpassed the 8.4 reading, coming in at a cheerful figure of 9.1. December’s Economic Sentiment Indicator flew past the previous reading of 114.6 for a figure of 116. November’s month-on-month Retail Sales bounced past the expected 1.3% increase, to the growth of 1.5%. Year-on-year sales increased by 2.8%, better than the 2.2% increase that was anticipated.
Today, the Deutsche Bundesbank released Germany’s Factory Orders, which slowed by more than expected to -0.4% in the November month-on-month reading. The overall strength of the sector was seen in the year-on-year figure of 8.7% growth, which soared past the expected reading of 7.8% and improved on the previous 6.9% increase in factory orders.
Tomorrow, the European Central Bank (ECB) will hold its first non-policy meeting of the new year, which is not expected to affect the single market currency. However, the ECB will be very closely followed on 25 January, when president Mario Draghi’s speech might have a weakening effect on the Euro. Inflation in the Eurozone slowed to 1.4% in December, which makes a good argument for the central bank to continue its bond buying programme until at least September.
Other Currencies – Highlights
Sterling has risen robustly against the Australian Dollar, trading at 1.72 AUD. The Aussie and the New Zealand Dollar have benefited from the rise in commodity prices. The Australian Dollar is exchanging at slightly below a three-month high to the weak US Dollar, in spite of today’s AiG release showing that December construction conditions were less favourable than they had been in November.
The Pound has fallen against the New Zealand Dollar, with the exchange rate lower at 1.88 NZD. The Kiwi has picked up strength due to the US Dollar weakening further, after Friday’s employment report showed the US had added less jobs than had been expected.
Sterling has fallen modestly against the Swiss Franc, with the exchange rate set at 1.32 CHF. Switzerland’s inflation rate for December has remained fairly stable for the year, according to today’s release of Consumer Price Indices. December’s month-on-month reading was expected to show prices falling by 0.1%, but the reading was 0%, instead.