Sunday 19 November 2017

Daily Market Update: Carney to face questions on Brexit

Dominic Lipinski/PA Wire
Dominic Lipinski/PA Wire

Richard Ramsey

This morning we have had more signs of a global economic slowdown.

China’s export slump intensified in February with a 25% year-on-year decline in US dollar terms. While these figures incorporate the week-long Chinese New Year holiday, the decline was still larger than expected and represents the biggest drop since May 2009. Meanwhile Chinese imports fell by almost 14% y/y (in USD terms) extending their series of declines to 16 successive months in February. The Chinese data follows confirmation that the Japanese economy shrank in Q4 by 0.3% q/q. This was marginally better than the 0.4% decline expected.

Japanese exporters are suffering from the twin challenges of a slowdown in global demand and a strong currency. The Nikkei 225 Index closed 0.8% lower this morning and this has set the tone for European equities with mining stocks giving up some of their recent gains. The Euro Stoxx index has fallen by 1.4% in early trading. The ratings agency Fitch has become the latest to downgrade its growth forecasts for the global economy. Fitch’s expectation for global growth in 2016 has been revised down from 2.9% in December to 2.5%.

On the markets, the dollar is back above $1.10 having opened yesterday morning at $1.097. EUR/GBP and GBP/USD are currently changing hands at 77.4p and $1.424 respectively. Meanwhile the oil price continued its upward ascent with the price of Brent crude touching $41pb yesterday.

In Europe, the leaders of the EU and Turkey agreed on the outlines of a new accord aimed at stemming the flow of migrants pouring into Europe. Under the provisional agreement, the EU agreed to speed up its work on Turkey’s EU membership application, visa-free access for Turkish citizens and billions in extra funding. Eurogroup president Dijsselbloem said that Cyprus will conclude its bailout programme successfully at the end of this month and is able to fund itself after three years of financial aid and reforms.

Meanwhile Greece remains the problem child within the Eurozone. Greek finance minister Tsakalotos said that Greece’s bailout monitors have agreed to return to Athens and restart talks over the country’s faltering €86bn rescue. Eurogroup president Dijsselbloem said that Eurozone finance ministers will begin discussing debt relief for Greece after international lenders verify that Athens has carried out promised reforms.

Yesterday the Bank of England revealed that it is preparing to protect British banks ahead of the EU referendum on the 23rd June. The central bank will provide three exceptional opportunities just before and after the vote. This will prevent institutions running out of funds in the event of a Brexit vote. This morning the BoE Governor, Mark Carney and one of his deputies, John Cunliffe, will address a Westminster committee on the UK referendum. The Governor will be questioned on the risks that a Brexit could pose to the UK economy and what measures the BoE may have to implement. This will be the key event within financial markets this morning with a relatively light data calendar.

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