Trump’s Most Important Meeting is Today
Sterling rose for the first time in 3 days after yesterday’s surprising rebound in the March services sector shows business growth rose to a 3-month high. The pound is stronger today and tomorrow the Bank of England’s Mark Carney’s comments could strengthen it further.
Both the US dollar and the yuan are down ahead of today’s first meeting between the presidents of the top 2 global world economies. President Trump wants to appear a tough deal-maker, and his Chinese counterpart Mr Xi also needs to project his power as a leader. Geopolitical fears rise as Trump condemns Syria and appears poised for military action against President Assad.
Pound Sterling – UK Markets
The pound was driven higher by yesterday’s news that UK’s new car sales have sped to an all-time record high last month. The 8.4% increase up to 562,337 from last month was seen as ‘a last hurrah’ by a Markit analyst who warned of decreasing spending ahead this year. The Bank of England also spoke of an impending decrease in consumer spending. With inflation increasing because of the weak pound, both businesses and consumers aren’t spending what they once had. Business and private buyers were taking advantage of the cheaper prices ahead of the April increase in new annual duty rates for cars that have a higher than zero emission rate.
Yesterday, the European Parliament debate was yet another opportunity for one of their own members, Nigel Farage, to insult EU members by saying they’re ‘like the mafia’. One of Brexit’s strongest proponents, Farage didn’t feel optimistic about the negotiations, which weren’t likely helped by his comments. He also complained that the EU won’t discuss trade until the UK paid the £52 billion ‘ransom’. Brexit negotiator, Guy Verhofstadt refused to agree to the precise figure of an exit bill. He said the EU must be ‘very firm’ regarding the UK losing access to the single market. Irish businesses that had been worried about a hard border were relieved to find this issue topped EU’s list of priorities. EU’s chief negotiator Michel Barnier said that a Brexit with no deal was bad for both sides, taking a stance against Prime Minister Theresa May’s statement.
US Dollar – US Markets
The US dollar dropped and Wall Street had its biggest single day reversal after the Federal Reserve (Fed) released its monetary policy minutes. The market was volatile after the Fed indicated would trim its $4.5 trillion balance sheet as part of the central bank plan to tighten monetary policy. Yesterday Wall Street opened higher after a much better than expected ADP job figure showed 263,000 jobs were added when only 180,000 were projected. Then, geopolitical pressure sparked further market volatility as President Trump condemned Syria’s chemical attack against civilians. He blamed former president Obama for condemning, but not taking military action against Syrian leader Bashar al-Assad, in the past. When asked if he was planning to take action, he said: ‘You’ll see,’ implying he’s authorising a military strike against Syria.
There’s been tension ahead of President Trump’s first meeting with President Xi Jinping today. Trump had said he’s called China a currency manipulator on his first day in office, and has commissioned reports to investigate which countries might be charged with this practice and how the US would best penalise them. It’s not in either country’s best interest to allow a trade war, so it’s likely they discuss ways to reduce the US’s $31.7 billion trade deficit by increasing US fuel exports since the US wants to produce more oil and China is already its biggest customer. At the conclusion of his harsh statements blaming Assad for Syria’s worst chemical attack in years, president Trump also mentioned North Korea. He’s said that the US would take unilateral action against North Korea for increasing its nuclear weapons program unless China took action. The Mar-a-Lago meeting puts investors’ attention on Trump’s inexperience as a world leader, raising fears that promise market volatility.
Euro – European Markets
The euro fell today after the European Central Bank’s Mario Draghi said there was no reason to raise the bank’s interest rates or tighten the Quantitative Easing programme. The euro is still relatively strong after mainly positive data releases. Today’s German factory orders were a disappointing exception, although they were only slightly less than had been expected. Yesterday’s Service sector PMIs showed that the eurozone’s overall growth is rising at almost a 6-year high. While the news was positive for Germany and France, Greece still isn’t able to partake of the bounty. Meeting with EU council president Donald Tusk, Greek Prime Minister Alexis Tsipras raised the stakes in his country’s debt crisis negotiations. Tsipras said there should be an emergency summit unless EU finance ministers manage to agree on Greece’s debt plan this Friday. Tsipras is under pressure to prove he can keep Greece’s commitment to repaying €86 billion in loans while salvaging the country’s crippled economy. Greece’s debt will be a prominent topic in tomorrow’s EU finance meeting in Malta.
After EU regulations gave their approval, China was a step closer to its largest takeover of a foreign company as it proceeded with a $43 billion merger with Swiss firm Syngenta. Beijing is acquiring the farm chemical and seed company in an effort to ensure China’s food supply is safe and reliable. The increasingly affluent Chinese middle-class have a suspicion of domestic food after a series of food scandals.
Other Currencies – Highlights
The Canadian dollar dropped to a nearly 3-week low against the US dollar after Tuesday’s release of a surprise trade deficit. Following three consecutive months of trade surplus, there had been an expectation of a surplus of C$500 million. Instead, February had a trade deficit of C$972 million as a result of a decrease in exports of aircraft and canola. Canola is Canada’s most valuable export, contributing C$26.7 billion a year to the economy, according to a recent report. The seed is processed into oil and meal and provides over 250,000 Canadian jobs and C$11.2 billion in wages. The February fall in farm, fishing and food products, of which canola is a large share, dropped by 10.6%. Exports of aircraft and aviation parts were down by 15.2%.
Lower oil prices were also having a negative impact on the Canadian economy, although this, and last month’s disappointing trade deficit release are balanced by a very strong series of economic releases for January. Economists noted the February release was a ‘big blow to optimism’ that the recent surge in January’s GDP figures had inspired. The next important release for Canada will be unemployment this Friday. On Monday, the Bank of Canada had noted the economy was showing signs of strengthening after lacklustre growth for the last 2 years. It will probably be quite cautious next week on its monetary policy report and there’s no expectation it will suggest altering interest rates.