Pound Down after DUP Backlash
The Pound slumped against most major currencies in the aftermath of Theresa May’s failure to strike a deal with Jean-Claude Juncker, during yesterday’s evening meeting. The British prime minister faced opposition from the Democratic Unionist Party (DUP), regarding the Irish border problem. May will meet with the DUP leader, Arlene Foster, in order to find a way to save the deal. Brussels seems to have become a second home for May, as one of the government’s officials said that she could be back in the capital of Belgium as early as tomorrow.
In the Eurozone, retail sales in October fell by 1.1%, on a monthly basis. This has been the worst reading over the last four years. On an annualised basis, sales rose by 0.4%, much lower than the anticipated 1.5% figure. Oil prices fell for the first time, after the OPEC meeting in Vienna, when published data showed that the number of active oil rigs in the US increased in the last week. US oil producers are exempted from the OPEC-led output cut deal.
Pound Sterling – UK Markets
Today, the Pound fell against the US Dollar with the exchange rate set at $1.34. Sterling also slumped against the Euro with the exchange rate set at €1.13. The British currency lost ground suffering from the lack of a Brexit deal in the Juncker-May meeting yesterday in Brussels.
IHS Markit published the UK’s Services PMI data for November. The Services PMI reading missed expectations, coming in at 53.8 instead of 55.0. The figure showed that services activity softened in the last month of autumn, retreating from a six-month peak recorded in October. As a result, the UK Composite PMI also came in lower than anticipated at 54.9. Markit’s analysts noted that job creation remained subdued in November. They also stressed in their report that there had been a sharp rise in prices charged by service providers.
The British Retail Consortium (BRC) released its November retail sales survey which showed that sales rose by 0.6%, on a year-to-year basis. Retailers said that consumers spent more of their budget for covering their needs in food. During October, retail sales had declined by 1.0%, the worst result recorded since 2008. BRC analysts noted that retailers hoped to increase sales thanks to their late-November promotions. The survey’s accompanying statement said that Black Friday failed to fundamentally shift underlying trends in spending.
US Dollar – US Markets
The US Dollar inched higher against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY) moved higher coming in at 93.21. In the afternoon, IHS Markit will publish data regarding the US Composite PMI for November and the Institute for Supply Management (ISM) will publish its Non-Manufacturing PMI for the same time period.
A Wall Street Journal (WSJ) report said that many S&P500 firms started lobbying in order to save some tax breaks, after the Senate decided to keep a corporate alternative minimum tax (AMT). This last-minute switch is an attempt to satisfy some of the voting senators and keep the legislation procedure alive. The AMT is a parallel system with lower rates and fewer tax breaks which kicks in if a firm’s regular tax bill is too low. Big firms are afraid that if the corporate tax drops to 20%, many of them will face the consequences of having to deal with the burden of the AMT.
Economists expect that the US Federal Reserve will raise its benchmark interest rate later this month, according to a poll by Reuters. While this isn’t exactly breaking news, the novelty comes from the fact that most of them expect three more hikes during 2018, instead of the two that were expected. Experts believe that the tax reform and the tax breaks which are included will force the Fed to tighten its monetary policy in the next months.
Euro – European Markets
The Euro inched lower against the US Dollar with the exchange rate set at $1.18. IHS Markit published its Services and Composite PMI data for the Eurozone countries and the bloc as a whole for November.
Markit’s survey showed that the Eurozone Services PMI came in at 56.2, in line with expectations. The bloc’s Composite PMI came in at 57.5 as it had been anticipated. Markit’s statement said that output growth accelerated at the fastest pace in over six years with the expansion of sectors such as employment and demand hitting also multi-year highs. In France, the Services PMI came in at 60.4, a bit higher than expected. The French Composite PMI also surpassed analysts’ expectations, coming in at 60.3.
The German Composite PMI in November came in lower than anticipated at 57.3. The Services PMI also surprised on the downside, recorded at 54.3. Markit’s economists noted that there was a loss of momentum in growth with business activity recording the slowest expansion over the last three months. Business confidence also seemed to fall near to an eight-month low. Competitive pricing which helped a rise in employment and activity, led the Italian Services PMI up to 54.7, beating expectations.
Other Currencies – Highlights
Sterling dipped against the Australian Dollar, trading at 1.75 AUD. The Reserve Bank of Australia (RBA) kept its benchmark interest rate unchanged at 1.5% in its monetary policy meeting. The RBA’s statement said that a rising Australian Dollar would slow the economy and inflation. Policymakers omitted the “inflation is likely to remain low for some time” reference in November’s statement, adding that it will pick up gradually.
The Pound dropped against the Australian Dollar, trading at 1.94 NZD. The acting Governor of the Reserve Bank of New Zealand (RBNZ), Grant Spencer, surprised economists when he noted that if inflation doesn’t pick up during the next year, the central bank should consider further easing its monetary policy. Spencer also said that “the RBNZ would need to be careful not to generate unwarranted instability in output, the Kiwi’s exchange rate or household debt.”
Sterling fell against the Polish Zloty, trading at 4.74 PLN. The Polish central bank is having its monetary policy meeting today. Economists expect to keep its benchmark interest rate on hold.