Trump’s Do-or-Die Deal
Sterling briefly spiked above $1.25 when yesterday’s Retail Sales for February smashed expectations even though inflation drove sales down by 1.4% over the 3-month period. The fall in the value of the pound has made UK cars pre-Brexit bargains, driving auto exports up to the strongest February sales figures in 17 years.
Trump’s struggle to get his first bill passed concludes today after lawmakers delayed yesterday’s vote in hopes of garnering enough support for their promised Obamacare replacement. Under the threat to do the deal now, or never, Trump’s presidential power is tested by Congress today.
Pound Sterling – UK Markets
The pound has settled in slightly lower today, making some adjustments after analysts from Standard and Poor termed its rapid rise ‘an aberration.’ Yesterday’s Retail Sales release boosted the pound against the weak US dollar, showing inflation can have its upsides, too. Rising petrol prices made shoppers buy less in terms of the volume, but that’s been good news for grocers as prices are finally rising. On the flip side, the 18.7% rise in petrol and diesel in February when compared to prices a year earlier was blamed for the 1.4% decrease in sales over the 3 months up to February.
Yesterday’s automobile manufacturing release showed the strongest February production for 17 years. With 8 out of 10 of the cars made in the UK sold internationally, the figures reflect what Bank of England’s deputy governor Ben Broadbent called the fleeting ‘sweet spot for exporters.’ In a London address titled: ‘Brexit and the pound’, he discussed the temporary trade benefit British business is enjoying ahead of any tariffs that might soon be imposed after Britain leaves the EU. The pound’s fall in value helps exports, but there’s concern about the risk of Brexit tariffs and trade barriers. Yesterday, the Society of Motor Manufacturers and Traders urged Prime Minister Theresa May to maintain Britain’s access to the single market. Calling the British automotive industry ‘the jewel in the crown’ of British manufacturing, Britain’s largest trade union, Unite, chimed in on the request to protect the UK’s unfettered access to trade.
US Dollar – US Markets
The US dollar is tied to Trump’s political prowess and so, if he fails to push through his bill to replace Obamacare, today, the dollar and markets will drop. With an election in 2018, Republicans are being pressed to vote for a bill many dislike, and which their Democratic constituents strongly oppose. A recent poll showed only 41% of Republican voters approve of the bill. The Congressional Budget Office calculated that, compared to Obama’s plan, 24 million fewer would have healthcare coverage by 2026. The House delayed the scheduled Thursday vote, with Trump saying they must either approve the bill today or perhaps forever lose their chance to repeal Obamacare. After a frenzied week of negotiating, the deal maker-in-chief has delivered an ultimatum, saying he’s now moved on to his budget and tax reform plans.
The dollar was at a multi-month low, yesterday, after the weekly initial jobless claims showed an unexpected additional 15,000 people filing for unemployment benefit. The figure of 258,000 is more than expected, but the labour market remains strong, as jobless claims have stayed under the threshold of 300,000 for 80 consecutive weeks. This is a record-long stretch that hasn’t been seen since 1970 when the US labour market was much smaller. Any hope that Federal Reserve Chair Janet Yellen’s speech would lift the dollar was dashed when her address kept firmly to the topic of preparing youth for future employment.
Euro – European Markets
The single market currency slipped against the pound on yesterday’s good retail and auto export news, but the situation has reversed itself after the Eurozone was the recipient of today’s good news data-wise. The euro gained strength against the pound after this morning’s releases show the EU’s 2 largest economies are performing remarkably well. France’s March Manufacturing and Services Markit PMI were much stronger than expected. Coming on the heels of February’s massive manufacturing improvement, this is now the highest French industrial growth figure in 67 months. These Purchasing Managers Indexes are a key indicator that France, like Germany where PMI’s sailed past expectations, are both showing the strongest private sector growth in 6 years. The Netherlands’ GDP ticked up a modest 0.6% from 0.5% for the first quarter of the year, rising to 2.5% when compared to the previous 1st quarter reading of 2.3%, for one more bit of happy news on a Friday.
Greece anticipates an unprecedented 30 million tourists this year with Greek bankers announcing their expectation that tourism will play a key role in Greece’s economic recovery. The picture is muted, because while it provides jobs- one in 5 Greeks is employed in the tourist industry-tourists are spending much less. Last year, arrivals increased by 5.1%, but revenue fell by 6.4% as tourists from EU countries and the US opted for budget holidays, according to the Bank of Greece.
Other Currencies – Highlights
The Canadian dollar strengthened slightly against its American counterpart on the release of a Canadian budget plan with a decidedly tentative feeling to it. Canada’s Liberal government is staying the course, waiting to see what shape US President Trump’s evolving trade and tax policies will take. Given the possible risks ahead in trade, economists soundly praised the rainy-day budget reserve of C$3 billion a year. The US’s increased production of crude oil has already cut the price of oil, one of Canada’s largest exports, by 0.3% a barrel. This recent glut, due to increased US fracking and rigs, has driven crude oil prices down below the key $50 a barrel mark for the first time since November.
The Canadian economy has steadily recovered since the fall in oil prices in 2014, and the Bank of Canada’s Deputy Governor, Lawrence Schembri, said that recent economic data was ‘largely consistent’ with the bank’s expectation that Canada would steadily strengthen. He was referencing this week’s retail, wholesale and manufacturing sales which soared past expectations. It was expected that January retail sales would grow by 1.1% but actual sales climbed by 2.2%, with an impressive value of C$46 billion. The bank isn’t expected to raise its key interest rates from 0.5 %, given the uncertainty regarding the US president’s trade policies. The central bank will be keen to see the key inflation figures due this afternoon which promise to keep the loonie in flight. Will it rise or descend?