Sunday 22 April 2018

Daily Market Update: Bank of England sees no clear evidence of sharp Brexit hit yet

Bank of England governor Mark Carney
Bank of England governor Mark Carney

John Barry

The Bank of England (BOE) said yesterday that it had not seen any clear indication of a sharp economic slowdown post the result of the referendum last month and the decision to leave the European Union.

The BOE said that its regional agents, who liaise regularly with companies, indicated that business uncertainty had risen markedly but that most firms did not plan to cut hiring or investment (about a third thought there would be some negative impact on those plans over the next 12 months).. Earlier in the month, the BOE had said that it expected the economy to slow significantly as a result of the referendum. The BOE report was in stark contrast to a report issued by financial data company Markit, which showed that British households were at their gloomiest in two and a half years about the economic outlook for the UK.

Also released yesterday was data from the Office for National Statistics (ONS) showing that UK unemployment has fallen to 4.9%, the lowest level since July 2005. The figures cover the period March to May.

In the United States, equity markets closed higher yesterday with the Dow Jones ending at a record high for the seventh day in a row on the back of better than expected earnings. The Dow gained for the 9th day in a row for the first time since 2013. The S&P also closed at a new record level while the NASDAQ had its highest close of the year.

All eyes will be on the European Central Bank (ECB) today. There is almost no expectation for any additional policy easing announcements at this meeting and the ECB has not signalled that any is likely. It will be very interesting however to see whether they indicate that stimulus is likely at future meetings. The German ZEW reading for July measuring German sentiment surprised significantly to the downside on Tuesday, which was the first reading post the UK referendum.

Eurozone consumer confidence was released yesterday showing that European consumers have become less optimistic about their prospects following the decision by British voters to leave the EU. In one of the first indicators as to how the vote is likely to affect the near-term economic outlook for the economic bloc, the European Commission data release showed that consumer confidence fell to its lowest level since December 2014.

On the foreign exchange markets, the dollar index hit a 4 month high against a basket of currencies yesterday, buoyed by strong US data and growing expectations that the US Federal Reserve may raise rates before the end of the year.   Data from the US Commerce Department showed that US housing starts increased 4.8 percent, underpinning a theme of strength in the economy

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