Wednesday 17 January 2018

Daily Market Update: Red flags unfurled as Osborne faces 'blue on blue'


Richard Ramsey

Economic data releases have been few and far between ahead of the main event of the week, tomorrow’s ECB policy announcement and press conference.

Yesterday the only release of note concerned US housing starts. Housing starts came in above expectations in September, rising 6.5% m/m to a 1206k pace (consensus 1142k), but permits (which are a pre-cursor to starts) fell 5.0% to 1103k (consensus 1170k). Disappointing trade data from Japan has pushed equities higher as speculation mounts that the Bank of Japan will inject more quantitative easing into its economy. The BoJ next meets on 30th October. Japanese export growth has slowed for the third successive month down from 3.1% y/y in August to just 0.6% y/y in September. The latter was well below expectations and represents the weakest rate of export growth since August 2014. Back in June, Japanese export growth was rising at a robust 9.5%. The prospect of more monetary stimulus is positive for Japanese equities with Nikkei 225 index closing 1.9% higher this morning.

Elsewhere in other markets, the ongoing glut in oil continues with US crude stockpiles expected to rise again with figures due later today. Brent crude oil has pushed 1.3% lower over the last 24 hours and is currently trading at $48 pb. On the currency markets, sterling has softened against the dollar and the euro over the last 24 hours. Cable has fallen from $1.547 to $1.543. Meanwhile EUR/GBP has moved from 73.2p to 73.7p over the same period. EUR/USD is currently changing hands at $1.137, up from $1.133 at yesterday’s open.

Yesterday the MPC’s sole interest rate-hiker, Ian McCafferty, was speaking to Bloomberg. According to McCafferty, the Bank of England must not fall behind the curve when it comes to making its first interest rate hike since before the financial crisis, according a policymaker, who said Britain's robust economy has not been damaged by slowing growth in China. However, yesterday saw Tata Steel announce 1,200 job losses from its UK operations. So far this month there have been 4,000 UK steel jobs lost with the steelmaker and unions pointing the finger of blame at cheap Chinese steel imports.

This is another consequence from the oversupply of Chinese made steel and the lack of demand for steel in China’s slowing economy. While the red flags are out in London for China’s president Xi Jinping, George Osborne is facing some Tory ‘blue on blue’ friendly fire on his welfare spending plans. A number of Conservative MPs and members of the House of Lords have called for a rethink on the proposed cuts to working families’ tax credits. The UK’s public finance data for September is due today. However, financial markets are likely to pay more attention to Governor Mark Carney’s speech in Oxford tonight. There are no major data releases due in either the Eurozone or the US today.

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