UK Retail Sales Fall off the Hanger
The Pound fell against the US Dollar as a series of negative reports showed that the British economy is rather on a bumpy road. The National Audit Office (NAO) released a report in which it warns that high levels of government borrowing are posing significant risks to the country’s finances. The NAO notes that these risks could be increased “by unexpected developments,” including the outcome of the Brexit negotiations. Two market surveys showed that UK consumers are cutting back on their retail purchases.
Mario Draghi, head of the European Central Bank (ECB), said that he sees little evidence of negative rates hurting banks’ profitability. Draghi said that the non-performing loans (NPLs) problem in the Eurozone hasn’t been solved yet. Data showed that Germany’s industrial production fell more than expected in September. As a result, the Euro fell to a four-month low against the US Dollar. President Donald Trump is expected to arrive in Seoul today, where the subject of North Korea would be on top of his agenda.
Pound Sterling – UK Markets
Today, the Pound dropped against the US Dollar with the exchange rate set at $1.31. Sterling edged up against the Euro with the exchange rate set at €1.13.
The results of the British Retail Consortium (BRC) survey regarding retail sales in the UK were utterly disappointing. In the three months to October, sales of non-food items rose by only 0.1%. This the worst figure recorded ever since the BRC started measuring non-food sales back in January 2011. Total retail sales increased by 0.2% in October, which is a very weak reading when compared to the 2.4% figure recorded in October 2016. KPMG economists noted that “clothing sales were particularly hard hit. The burning question for retailers is whether shoppers are holding off their purchases until Black Friday.”
A Barclaycard report said that consumer spending growth in the UK fell to 2.4% in October, with shoppers making cut-backs on non-essential items. Barclaycard’s analysts noted that UK consumers stayed cautious, being concerned over the country’s economic outlook, with a third of them believing that an interest rate hike could affect their spending patterns. A Halifax report showed that house prices increased by 0.3%, on a monthly basis, a bit better than the anticipated 0.2% figure for October.
US Dollar – US Markets
The US Dollar is holding steady against the Euro, exchanging at €0.86, and has strengthened against the Pound, trading at $1.31. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, has risen to 95.03.
Yesterday, the US Federal Reserve (FED) was in the spotlight after the New York Fed President William Dudley announced his retirement in mid-2018. Expressing his concerns about President Trump’s deregulation plans, he asked Congress to “do no harm.” Dudley warned against removing the laws that had been put in place to safeguard the economy from the large banks and Wall Street firms after the 2008 financial crisis. He said lawmakers “should not lose sight of the horrific damage caused by the financial crisis, including the worst recession of our lifetimes.”
Today, when Federal Reserve Chair Janet Yellen receives an award for ethics in government, her comments will be studied for her opinions on loosening financial regulation. The topic will be discussed further by the Fed Vice Chair for Supervision when he participates in the Clearing House Annual Conference today.
Euro – European Markets
The Euro dipped against the US Dollar with the exchange rate set at $1.15, hitting a four-month low. The single market currency suffered losses when data showed that German industrial output dropped more than anticipated in September.
Germany’s industrial production declined in September by 1.6%, on a month-to-month basis, shocking analysts who were expecting a 0.8% drop. On an annualised basis, the German industrial production increased by 3.6% in the first month of Autumn, significantly lower than the 4.4% figure forecast. An IHS Markit survey recorded a small weakness in the growth pace of the German construction sector. October’s construction PMI came in lower than expected at 53.3 instead of 53.4. Markit’s report said that new orders increased more slowly amid reports of full utilisation of resources.
ING analysts suggest in a report that investment should pick up in German industry since German businesses increasingly mention equipment as a limiting factor for manufacturing output. In Italy, retail sales in September increased by 3.4%, on a year-to-year basis, surpassing all expectations. On a monthly basis, Italian retail sales increased by 0.9%. Eurostat will publish data regarding retail sales in the Eurozone, which are expected to have picked up in September.
Other Currencies – Highlights
Sterling inched higher against the Australian Dollar, trading at 1.71 AUD. The Reserve Bank of Australia (RBA) kept its benchmark interest rate on hold at 1.5% for the fifteenth month in a row, as it was anticipated. The RBA’s governor pointed out that prospects for non-mining investments have improved. A report by Westpac noted that the RBA’s statement, after the meeting, repeated the neutral language of previous statements.
The Pound moved higher against the New Zealand Dollar, trading at 1.89 NZD. Finance Minister Grant Robertson said that the procedure to review and reform the Reserve Bank Act, as it was promised by the new coalition government, has started. The government intends to add employment to the RBNZ’s price stability objective. Steven Joyce, National’s finance spokesperson, said that “Mr. Robertson’s plan to introduce maximising employment as a second objective is redundant at best, and potentially confusing.”
Sterling gained ground against the Czech Koruna, trading at 29.04 CZK mark. The Czech industrial output rose by 4.4% in September, on a year-to-year basis. Retail sales in the same month increased by 6.2%, exceeding expectations.