Saturday 17 March 2018

Daily Market Update: Brexit Concerns Weigh on Sterling


Financial markets continue to ponder over political issues not least the threat of Brexit.

There was little in the way of top-tier economic data for markets to get excited about yesterday. Instead financial markets continue to ponder over political issues not least the threat of Brexit. Boris Johnson’s appearance in front of Westminster’s Treasury Select Committee didn’t help soothe concerns or make a convincing case for Brexit. The financial press referred to a performance light on facts. Boris Johnson was appearing in his capacity as the Mayor of London. On the currency markets, sterling has been on the back foot and is back above 79p at 79.2p this morning. The pound has also lost over one cent against the dollar over the last 24 hours and is trading at $1.407 as I write. Meanwhile the dollar has continued to edge lower against the single currency and is down at $1.116 this morning.

Minutes from Bank of Japan’s (BoJ) March 14-15 meeting showed that BOJ board members engaged in heated debate on the pros and cons of their decision in January to adopt negative interest rates, with one even saying it was preferable to roll it back. At the March meeting, advocates of negative rates said the policy was exerting its intended effects with mortgage loan rates and corporate borrowing costs already on the decline. Nikkei Asian review reported that BOJ may turn focus from expanding the money supply (its asset purchase programme or ‘Quantitative Easing’) to holding down rates as it quoted unidentified BOJ official as saying money supply expansion has no effect, while pushing down rates is meaningful.

IMF chief economist Maurice Obstfeld and co-authors Gian Maria Milesi-Ferretti and Rabah Arezki argue in a new blog post that slow global growth, and low and even negative interest rates that central banks have introduced in most major economies in recent years, have undermined what ought to have been a boost from lower oil prices. They added “Paradoxically, global benefits from low prices will likely appear only after prices have recovered somewhat and advanced economies have made more progress surmounting the current low interest rate environment.”

Looking at today’s data calendar, the key release in the UK is the retail sales figures for February. Following January’s robust rise of 2.3% m/m, for the retail sales measure excluding cars and fuel, analysts are expecting a 1% m/m fall in February. However, this would still equate to an annual rise of 3.5%. We also have the latest BBA mortgage data for February and the CBI’s Distributive Trades survey. In the Eurozone we have already seen consumer confidence (April) and business confidence (March) slip for Germany and France respectively. In the US we have a variety of data releases due. These include the latest weekly jobless claims, February’s durable goods orders and the Markit flash services and composite PMIs. The services PMI slipped below the expansion threshold of 50.0 in February. The consensus opinion amongst analysts is for a return to modest growth (51.4) in March. The durable goods orders are also expected to fall back from January’s strong gains.


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