UK Budget Deficit Hits Ten-Year Low
Sterling fell slightly against the US Dollar and the Euro, despite the release of a survey by the Office for National Statistics (ONS) which showed that public sector net borrowing in the year to date is at its lowest levels in the last ten years. Damian Green, the First Secretary of State and a close ally to Theresa May, was sacked after he was found to have breached the ministerial code. Theresa May is visiting Poland today, accompanied by senior government ministers for talks with the Polish government.
In the US, President Donald Trump took advantage of the tax reform bill passing through Congress to tell US citizens that a vast amount of money is expected to be repatriated because of the reform. Trump was praised by senior Republican members for his leadership. Bond yields jumped as the anticipated tax cuts will lead to government excessive borrowing, increasing the supply of new bonds.
Pound Sterling – UK Markets
Today, the Pound lost minor ground against the US Dollar with the exchange rate set at $1.33. Sterling inched lower against the Euro with the exchange rate set at €1.12.
The ONS released data regarding public sector borrowing in November. The survey showed that public sector net borrowing decreased by £3.1bn in the period between April and November when compared with the same period in 2016. Total public sector net borrowing amounted to £48.1bn, which is the lowest figure recorded since 2007. According to the ONS, tax receipts increased by 5% in November. However, analysts said that January will be the most important month for public finances as individuals will be paying their self-assessed income tax bills.
A survey by the Society of Motor Manufacturers and Traders (SMMT) showed that the number of cars made in British factories in November, destined to be sold in the UK, plunged by 28%. This is the biggest drop during 2017 with November being the fourth consecutive month that the demand for cars is weakening. An SMMT executive noted that “Brexit uncertainty, coupled with confusion over diesel taxation and air quality plans, continues to impact domestic demand and, with it, production output.”
US Dollar – US Markets
The US Dollar surged against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY) inched higher coming in at 93.41. Later in the afternoon, the Department of Commerce will publish data regarding the third quarter’s GDP.
After thirteen months as the US President, Donald Trump has a reason to celebrate his first major legislative victory. The Congress voted in favour of the Tax Cuts and Jobs Act, sending the bill to be signed into law by the President just before Christmas, in line with the timeframe set by Republicans. According to economists, the tax cuts will help rich people and corporations while giving only temporary relief to middle-class citizens.
President Trump described the passing of the tax reform bill as “an amazing experience.” Trump said that “we are making America great again. I campaigned on the fact that we are not going to lose our companies anymore. We are going to see at least $4tn come back into this country.” Senator and House Speaker Paul Ryan complimented Trump for his “exquisite presidential leadership.”
Euro – European Markets
The Euro inched lower against the US Dollar with the exchange rate set at $1.18. In the evening, the European Commission will publish preliminary data regarding December’s consumer confidence in the Eurozone.
The German Federal Ministry of Finance published its Monthly Report, in which the Deputy Minister Thomas Steffen made some interesting observations. Steffen noted that Germany should take advantage of the favourable economic climate to make sufficient preparation and build a buffer for bad times. Steffen stressed that the combination of high debt and high asset prices could pose a risk for financial stability and the economy.
Vitas Vasiliauskas, the chairman of the Bank of Lithuania and one of the members of the ECB’s governing council, said that the central bank’s board will continue to discuss the end of the quantitative programme during 2018. However, he expressed the opinion that now would be a good time to start the debate on that as there are still dovish board members who are not fond of reducing the monetary stimulus.
Other Currencies – Highlights
Sterling slumped against the Australian Dollar, trading at 1.74 AUD. Treasurer Scott Morrison said that Australia lost an opportunity to be the first country that would proceed in cutting corporate taxes. Morrison accused the Labour party and, especially, the Labour leader Bill Shorten for opportunism. The Treasurer said that “by refusing to support the enterprise tax plan, he is working for our economic opposition. He needs to work in Australia’s economic interests.”
The Pound edged up against the New Zealand Dollar, trading at 1.91 NZD. Statistics New Zealand released data regarding the country’s GDP in the third quarter of the year. The GDP rose by 0.6%, on a quarterly basis, surpassing analysts’ expectations. The report accompanying the data said that the GDP’s expansion was helped by a recovery in construction activity during the September quarter.
Sterling remained stable against the Japanese Yen, trading at ¥151.83. Haruhiko Kuroda, the Governor of the Bank of Japan (BoJ), said that the central bank will adjust its policies in order to maintain momentum towards the 2% inflation target.