Tusk Formally Fires Back
The pound and euro are both weighed down after European Council President Donald Tusk delivered EU’s response to Prime Minister Theresa May’s triggering of Article 50. May’s request for ‘parallel negotiations’ was roundly rejected. ‘There’s no such thing as a Brexit bill,’ Tusk said, reiterating the UK must meet its financial commitments to EU.
The dollar dipped briefly on President Trump’s tweeted criticism of the trade deficit the US has with China, a week ahead of his first meeting with Chinese President Xi Jinping. But the Federal Reserve’s confidence in another rate hike and positive GDP data kept the greenback on its winning streak.
Pound Sterling – UK Markets
The pound continues weakening as Brexit begins. On news that Lloyd’s of London and JP Morgan are opening offices outside of the City, Liberal Democrats hit out at the government for not keeping Britain in the single market, noting the risk of losing £200 billion over 15 years. In effect to stop this ‘Brexodus’ of businesses, London’s mayor Sadiq Khan promised London could keep a ‘privileged access to the single market’, but couldn’t offer specific proof of this.
Today’s data release is a mixed bag that’s not lifting the pound. UK’s 4th quarter GDP shows the UK has firmly fallen to 2nd place behind Germany, in terms of last year’s growth. Still, the news that the UK is still expanding is good. Also, positive: the trade deficit has shrunk to the lowest level since 2011. In the bad news category: house prices have fallen for this first time since June 2015. Household savings are at historically low levels as Britons have less disposable income and are being squeezed between falling wages and rising prices.
It’s not an April Fool’s joke, honestly, on Saturday the National Living Wage (formerly known as the National Minimum Wage) rises from £7.20 to £7.50 which gives 30p more an hour to 1 in 10 workers. This is £600 more a year for those over 25. If their employers are one of the 3,000 who’ve signed up for the Real Living Wage, London workers would make £9.75 and those labouring elsewhere would earn £8.45 an hour.
US Dollar – US Markets
The US dollar has rallied after positive GDP releases added to the Federal Reserve’s confidence in the country’s economy. Higher consumer spending in the fourth quarter of 2016 caused growth that was revised to show the economy expanded by more than had been reported. Annualised GDP was marked up to 2.1% on the strength of consumer spending-the biggest engine of the economy-rising by 3.5%. A decrease of 1.82% in trade was the only bad news, which only magnified the Trump administration’s determination to change the US’s trade policies. The unexpected decrease in exports was the largest drop since 2004.
Today, President Trump is ordering his economic team to begin a study identifying all the examples of ‘trade abuse’ that contribute to the US’s trade deficit. It was leaked yesterday that the team is looking for ways to ‘penalize currency manipulators’, especially China. After it was announced that Chinese President Xi Jinping will meet with the US leader next week, President Trump sent a tweet that described how the meeting would be difficult due to the trade deficit. China is the US’s largest trade partner, and one of the top 3 export markets for 3 states. But it’s also the US’s biggest trade deficit, with almost half of the US’s total trade deficit which was at a value of $347 billion in 2016, having steadily grown since then.
Euro – European Markets
The euro was sunk on a series of data releases yesterday, especially when an unexpected drop in German and Spanish inflation was seen. It reinforced the notion that the European Central Bank (ECB) shouldn’t tamper with its monetary policy. A Reuters reported leak from the ECB had already weakened the euro, making it clear that the ECB isn’t planning to-and shouldn’t-change its policy soon. Sources said the bank didn’t intend to suggest it would raise interest rates next year or curtail any easing programs. Investors, misreading the ECB’s intentions, dove into buying government bond yields. The current level of bond yields is safe level but, had the yield rise carried on, borrowing costs would be much higher for the EU countries already straining under the burden of debt.
Ahead of EU’s official response to Article 50, today, Chief European Parliament negotiator Guy Verhofstadt had already established EU’s idea of a working timeline for the negotiations, saying that the withdrawal which EU insists on putting first will take at least 14-15 months. EU Commission president Donald Tusk said that Brexit talks will be ‘very tough’ and he stressed the EU27 will be united during the negotiations. He laid out a brief outline of the 4 major points in his preliminary press conference emphasising EU’s determination to put people first to minimise uncertainty for EU citizens in the UK and British citizens in Europe. Secondly, he stressed that EU laws will stay in place until the UK exits. The UK’s financial commitments were, again noted and he added the EU sought ‘creative’ border control solutions for EU’s Ireland border.
Other Currencies – Highlights
The Australian dollar is at a 1-week high against the US dollar thanks to a rise in commodity prices as iron ore and oil have been up by over 3% for the last 2 days. British data company Cambridge Analytics, has been hired by Australia’s ruling conservative Liberal Party and CEO Alexander Nix is meeting Prime Minister Turnbull’s senior officials. The firm’s ability to study and manipulate public opinion has been credited with Trump’s presidential win, after his campaign spent some $15 million for their services. They also claim credit for the Brexit result. With compulsory voting at federal elections every 3 years, Australia’s population of 24 million represents a good profit base for firms earning their incomes on political elections. There’s concern that the company’s goal of targeting voters through social media and data tracking to manipulate their opinion undermines the democratic function of elections.
Recent cyclone Debbie will continue making itself felt in Australian supermarkets because the northern Queensland region it ravaged is known as ‘Australia’s winter food bowl.’ National Farmers’ Federation President Fiona Simson expects ‘well over 1 billion dollars’ worth of damage’ to produce. The region produces 62% of Australian sugar cane, valued at $1.1 billion. Debbie’s deluge, which included winds gusting up to speeds of 263km an hour left 52,000 without power in south-east Queensland. Floods caused massive evacuations and people were warned to stay out of floodwaters after a bull shark washed up in a road. The Insurance Council of Australia declared Debbie a catastrophe, anticipating billions of Australian dollars in damage claims.