Net Lending to UK Individuals Rise in January
At the onset of a new week, markets continue to mull over the outcome of the recent G-20 meeting and on Britain’s referendum on its membership of the European Union, which will be held in June. Meanwhile, there is little in terms of notable economic updates across the globe today. In the UK, the just out data showed that net lending to individuals increased in January, indicating consumers growing willingness to spend which will eventually support economic growth.
In Europe, a preliminary reading of inflation for February is due for release in a short while which will help shape expectations of the European Central Bank’s next course of policy action. Across the Atlantic, pending home sales and Chicago PMI, scheduled for publication later today, will draw some market attention.
Pound Sterling – UK Markets
The Pound continued to trade close to multi-year lows against the US Dollar this morning. The currency pair has been under pressure over the last several days amidst growing fears of a possible UK exit from the European Union. In the coming days too, market focus will remain on referendum developments in the UK with the voting date set for 23 June. On the macroeconomic front, the just out numbers indicated that net lending to individuals showed improvement in January after slightly dipping in the previous month. As lending growth is closely linked to spending levels, the increase in January’s lending figures suggest that consumer spending will continue to remain a key driver of UK economic growth. Additionally, UK consumer borrowing jumped higher than expectations in January.
Meanwhile, Britain’s finance minister has recently warned that public spending could be slashed more deeply than previously anticipated after economic growth for the UK was smaller than expected, according to data released last week. His comments came ahead of an annual budget statement going to be held next month.
US Dollar – US Markets
This morning, the US Dollar has trimmed most of last week’s gains and is currently trading modestly flat against the Euro and Sterling. It is going to be a heavy data week for the US, with market participants paying closer attention to February’s jobs data and manufacturing and services data in the US, for signs that the economy is improving. The ISM manufacturing activity data is expected to show a slight improvement in February. However, market focus will be more on the US services data after last week’s Markit survey data had shown that the services industry failed to meet expectations and slipped into contractionary territory. Non-farm payrolls for February will mark the end of this week’s US economic releases and are projected to show job gains. As for today, US pending home sales numbers are due later in the day, which is expected to post another gain for January.
On Friday, robust core inflation reading and better than expected GDP in the US buoyed the greenback against the majors and fuelled hopes of further policy tightening.
Euro – European Markets
The Euro has reversed its early morning gains and is trading lower against the Pound. Market participants await today’s release of flash Euro zone inflation data for February, amid persistent fears of deflation. Consumer prices in the Euro zone continue to remain at unusually low levels for the headline data. Even last week, the Euro zone's inflation in January was revised downwards from initial estimates, accentuating worries of disinflationary pressures in the months ahead. On the other hand, the core inflation rate has continued to rise at a fairly steady pace, with January’s increase regarded as the highest rate since May 2015. Meanwhile, expectations are for today’s preliminary Euro zone consumer prices data to show a weaker print for February.
Earlier today, German retail sales data brought in good news on the consumer spending front for the Euro zone’s biggest economy. Data showed that German retail sales grew in January, indicating that conditions for consumption remained good despite a slowdown in emerging economies. In addition, strong employment and cheaper gasoline are likely to have boosted private spending.
Other Currencies – Highlights
The Japanese Yen is currently trading on a stronger footing against the greenback on the back of worsening risk sentiment. During a weekend meeting of G-20 policymakers, Japan’s currency and monetary policy emerged as a source of concern for some officials from the world’s leading economies. Reports indicated that the Bank of Japan’s (BoJ) unprecedented monetary stimulus, which has weakened the Japanese Yen against the US Dollar and driven bond yields to historic lows had the officials concerned about a possible competitive devaluation of currencies. However, the BoJ Governor tried to play down the opposition concerns by stating that it was unlikely that financial institutions would impose negative interest rates on individual depositors.
On the data space, mixed economic reports were released in Japan. Japan’s industrial production rose for the first time in three months in January, while retail sales dipped for the same month, triggering doubts about the nation’s recovery in this quarter. Earlier today, Japan’s housing starts unexpectedly rose at the start of 2016.