OBR’s Pessimistic Forecast Overshadows Budget
The British GDP increased in the third quarter of 2017 by 0.4%, on a quarter-to-quarter basis, according to data published by the Office for National Statistics (ONS). The Office for Budget Responsibility (OBR) revised its GDP growth forecast lower for the next four years, watering down any optimism coming out of the Autumn Budget announcements. Chancellor Philip Hammond said that the government will abolish the stamp duty for first-time house buyers in an effort to help young couples. The OBR’s report noted that the measure will only help people who already own a house, since their property will increase in value.
In the US, the minutes from the last Fed board meeting showed that some policymakers expressed their fears about the continuing low inflation and a potential stock market “bubble” that may threaten the foundations of economic recovery. In the Eurozone, the manufacturing and services sector performed much better than expected in November, hitting a six and half year high as an IHS Markit survey showed.
Pound Sterling – UK Markets
Today, the Pound dropped against the US Dollar with the exchange rate set at $1.33. Sterling tumbled against the Euro, losing 0.4% in value, with the exchange rate set at €1.12. The Autumn Budget, the OBR’s announcements and the release of the British GDP data are the focus of today’s news.
The ONS announced that the British GDP in the third quarter of 2017 expanded by 1.5%, on an annualised basis, in line with City analysts’ expectations. On a quarter-to-quarter basis, the UK GDP rose by 0.4%. Imports picked up 1.1% while exports declined by 0.7% on a quarterly basis. A pick up (0.6%) was observed in consumer spending along with a minor rise in business investment. However, Philip Hammond’s Autumn Budget and the OBR’s economic growth revisions still remained in the centre of discussions about the future of the UK’s economy.
Just one hour after the Chancellor’s speech in the House of Commons, the OBR published a report in which it downgraded the UK’s economic growth prospects for the next four years. The independent economic forecaster noted that the reason for the revision is the poor productivity and the weakening of household incomes because of the devaluation of the Pound. The Chancellor said on BBC Radio 4 that low productivity is attributed to the lack of investment by British businesses, adding that the government will try to tackle the problem with short and long-term measures.
US Dollar – US Markets
The US Dollar lost ground against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY) came in at 93.13, which is a five-week low. Americans are going to be enjoying the traditional Thanksgiving turkey dinner, so no major data releases are expected today.
The US Dollar fell yesterday when data regarding durable good orders in October and jobless claims missed expectations, disappointing investors and traders. Durable good orders were weighed down by a decline in civilian aircraft orders, which is highly volatile according to Nomura analysts. As a result of the relaxed holiday spirit, trading volume remained relative low in Wall Street with the rising crude oil prices boosting the energy shares’ prices.
However, the Dollar’s sell-off increased when the release of the Federal Open Market Committee’s (FOMC) November meeting minutes revealed that some of the Fed’s board members are particularly worried about low inflation in the US. During the meeting, the board even discussed about changing the central bank’s approach to price stability. Some members expressed their concerns regarding the rallying stock markets, being afraid that a “bubble” is forming and stressed that there could be damaging effects on the economy from a sharp reversal of asset prices.
Euro – European Markets
The Euro surged to the US Dollar with the exchange rate set at $1.18. The single market currency took advantage of the US Dollar’s fall and managed to gain value, although some data from Germany missed expectations.
IHS Markit published November’s manufacturing and services PMI index data for Euro-bloc countries. Markit’s survey showed that the Eurozone’s composite PMI surpassed expectations coming in at 57.5, a much better result than the 56.0 anticipated reading. November’s figure is the highest in the last six and a half years with the number of jobs increasing at the fastest pace in the last seventeen years. Germany’s composite PMI came in at 57.6, beating expectations despite a minor drop, recorded in the services sector. The French composite PMI came in at 60.1, which is a strong indication that the country’s economy is firing on all cylinders.
On an annualised basis, the German GDP in the third quarter of 2017 rose by 2.3%, instead of 2.6% that analysts anticipated. However, on a quarterly basis, Germany’s GDP expanded by 0.8% in line with expectations. ING analysts expressed their satisfaction, noting in their report that “out of the last 34 quarters, only three quarters recorded negative GDP growth. The German economy is showing its best performance since the 1990’s.”
Other Currencies – Highlights
Sterling lost ground against the Australian Dollar, trading at 1.74 AUD. A white paper published by the Foreign Ministry revealed that the Australian government is afraid of Chinese belligerence over territorial disputes in the area. The paper said that stronger efforts should be made to maintain the US presence in Asia in order to counterweight China’s expansionist policy.
The Pound dipped against the New Zealand Dollar, trading at 1.92 NZD. Statistics New Zealand published data regarding retail sales in the third quarter of 2017, which were rather disappointing. Sales grew by only 0.2%, on a quarterly basis, instead of increasing by 0.4% as analysts were anticipating. Retail sales, excluding cars, rose by 0.5%, with the pace of growth being again weaker than expected.
Sterling fell against the Polish Zloty, trading at 4.73 PLN. The CEO of Bank Pekao said on CNBC that the economy has been transformed and that Poland could become the next hub for tech start-ups.