Productivity Growth Hits Six-Year High
The Pound edged up yesterday after the release of a series of Purchasing Manager Induces (PMIs) revealed that the UK economy is still expected to grow at a rate of around 1.5% in the year ahead. The Office for National Statistics (ONS) has reported that UK workers’ productivity in both the services and manufacturing industries increased in the third quarter of last year. Separately, in 2017, UK car sales plummeted by the largest decline seen since 2009, as falling diesel sales pulled down the overall sales figures. Worries about potential new diesel penalty fees and concerns regarding Brexit are likely to keep new car sales lower in the first quarter of 2018.
The US Dollar is gaining a little momentum ahead of today’s release of the Nonfarm Payrolls since the unemployment rate is expected to drop further. This is the most significant data release for the day, because, after a week of stronger than expected PMIs, a strong labour market will increase the chances of the US Federal Reserve initiating a series of interest rate hikes this year.
Pound Sterling – UK Markets
Sterling has slipped slightly against the US Dollar, with the exchange rate set at $1.35. Sterling strengthened slightly against the Euro, exchanging at €1.12.
The news that UK productivity in the third quarter of 2017 rose by 0.9% in the third quarter of 2017 is hoped to point to future growth; also being stronger than expected. The figure representing the amount of work employees produce, unexpectedly jumped to the highest levels recorded since April-June of 2011. Although this is good news since higher productivity increases economic growth, productivity has yet to return to the levels seen prior to the financial crisis.
UK’s new car sales fell by the 5.6% in 2017; the largest decline since 2009. Diesel sales suffered the largest loss, declining by 17% for the year and 31% in December, caused by consumer distrust in the emissions performance of diesel cars following the Volkswagen emissions scandal. Germany’s new cars sales increased by 2.7%, and their diesel sales were down by 13%. The Society of Motor Manufacturers and Traders, the UK automotive industry’s trade body, forecasts that UK diesel sales will decline further by as much as 7% in 2018. Diesel’s future appears doomed by EU diesel pollution penalties as well as a series of industry innovations including the rise in hybrid and electric vehicles. Sales of alternative fuelled cars are up to record highs, increasing by 34.8%.
British Retail Confederation (BRC) Shop Price Index year-on-year for December shows that discounts decreased in non-food item prices by 2.1% year-on-year. December’s deflation was in sharp contrast to November’s prices for the same period which were only reduced by 1.1%. However, food prices, which have risen by 1.5% in November, continued to climb by 1.8% in December. BRC’s chief executive, Helen Dickerson said: “Food inflation picked-up pace this month, fuelled by climbing global process earlier in the year.”
Yesterday, was dubbed “Fat Cat Thursday,” highlighting the fact that by lunchtime on Thursday, 4 January, top British bosses will have earned more than the average UK worker earns over the course of a year. According to analysis by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre, Chief executives of FTSE companies are paid an average of £3.45million annually, or around £898 per hour. This amounts to 120 times the £28,758 average earnings by UK workers and 256 times more than workers earning the minimum wage.
Addressing the National Health Service’s (NHS) “winter crisis,” prime minister Theresa May spoke from Frimley Park hospital, yesterday. May thanked NHS staff for the “fantastic work that they are doing,” apologising for the delays patients are currently facing. May’s statement that the government is “putting record amounts of money into the NHS” has been proven to be inaccurate, according to The Economist. They reveal that healthcare spending as a share of GDP in 2014 through 2015 was 7.3% and it is projected to fall to 6.6% by 2021.
US Dollar – US Markets
The US Dollar is picking up some strength, exchanging against the Pound at $1.35 and the higher against the Euro with the exchange rate set at €0.83. The US Dollar Index (DXY) has climbed higher to 92.05.
President Donald Trump campaigned on a promise to create 25 million jobs over the next decade, however, without a surge in immigration, his pledge is proving impossible. A growing scarcity of qualified US workers is likely to soon reduce the currently high rate of employment, according to the National Federation of Independent Business’s monthly survey. Last month, Federal Reserve Chair Janet Yellen said the central bank expects “the pace of job gains to moderate over time.” In the FOMC minutes of their last meeting, the committee expected the tightening labour market to lead to wage growth and inflation.
US labour market saturation may be starting to become evident from weekly initial jobless claims. Yesterday’s Automatic Data Processing (ADP) release sailed past expectation of an additional 190,000 jobs gained by adding 250,000 jobs in December. Also, Continuing Jobless Claims for the week of 22 December dropped from 1.925million unemployed to 1.914million. However, the Labour Department’s Initial Jobless Claims for the last week in December were expected to drop from a previous figure of 247,000 to 240,000 of new claims. It rose to 250,000, instead. Today’s Nonfarm December Payrolls are expected to show that 190,000 new jobs or more were added, down from 228,000 previous new jobs.
Yesterday’s Markit Services PMI for December beat expectations of maintaining the previous figure of 52.4 with a higher reading of 53.7. This follows the same positive growth pattern seen in the ISM Manufacturing PMI which was expected to drop slightly from 58.2, but instead expanded to 59.7. The Markit Manufacturing PMI was an exception in that it rose by only 0.1 over analysts’ expectations.
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.
Germany’s month-on-month Retail Sales for November surged to more than twice the expected increase of 1.0%, to an 8-month high. According the Federal Statistics Office, consumer spending sharply rebounded from a fall by 1.2% in the previous period. “The headline likely is flattered by Black Friday sales—and the fact that November 2017 had one more shopping day than in 2016,” said Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics. The reading left him “more confident that overall consumption recovered in the forth quarter,” after the previous decrease. Year-on-year sales also flew past expectation of a 2.5% reading, coming in at 4.4% for November.
Eurozone inflation fell from 1.5% in November to 1.4% in December, according to the release of today’s Consumer Price Index (CPI). The Core CPI indicates that the underlying rate held firm at 0.9%, rather than increase to the 1% rate that was expected. This data will be seen by the European Central Bank as confirmation to maintain the cautious policy of waiting longer for inflation to rebound before making any monetary policy adjustments, in spite of very solid economic expansion and declining unemployment.
Yesterday’s upbeat Services Purchasing Managers Indices, which revealed the most rapid rise in the service sector in over six years, strengthened the single market currency against its major rivals. The Eurozone private sector expanded to levels not seen since early 2011, fuelled by an impressive year of manufacturing expansion. The data release spiked the Euro to Japanese Yen exchange rate to rise to the highest levels seen since October 2015.
Other Currencies – Highlights
Sterling has risen robustly against the Australian Dollar, trading at 1.72 AUD. The Aussie dropped following the release of an unexpected November trade balance deficit of 628 million caused by a fall in gold exports. This came after October’s trade balance had been revised from a surplus to a deficit of 302 million.
Sterling has weakened against the New Zealand Dollar, with the exchange rate set at 1.89 NZD. The Kiwi’s weak performance last year against most major peers is expected to continue this year as the Reserve Bank of Zealand waits for core inflation and wage growth to rise until hiking interest rates.
Sterling has made slight gains against the Canadian Dollar, with the exchange rate set at $1.69CAD. Over the course of 2017, the British Pound gained 2.42% value against the Canadian currency. The US Dollar lost 6.47% in value while the Euro picked up 6.76% in value against the loonie from 30 December 2016 until 29 December, 2017.