Euro Weekly 13 April 2018
The pound had a relatively good week, a reflection in part of the confidence shown in a survey of chief financial officers carried out on behalf of Deloitte. The survey revealed that for the first time in two years they do not see Brexit as the biggest risk to their business. The main concern now is weak domestic demand for their products and services, which may be related to Brexit but the establishment of the transition period. The pound was also assisted by a 1.5% monthly increase in the Halifax house price index early in the week. There was more good news; the British Retail Consortium reported that UK consumers demonstrated their confidence by spending 1.4% more in March than they did in the same month last year. Monetary Policy Committee member Ian McCafferty told Reuters in an interview that “We shouldn’t dally when it comes to tightening policy modestly”. As a notorious hawk, and having voted for an increase at the last MPC meeting, his sentiment did not come out of the blue but was nevertheless helpful to the pound.
However, it wasn’t all rosy – UK manufacturing output unexpectedly fell 0.2% in February – the first decline in almost a year and down from revised growth of zero for January. Economists had forecast a 0.2% rise in industrial and manufacturing output in February. Output from manufacturing rose by 2.5% year-on-year. Overall industrial output, which also includes energy production, went up 0.1% in February, after a 1.3% rise the previous month. Construction output dropped by 1.6% in February, on top of January’s 3.1% decline. In addition, a lack of activity in the UK housing market could make it more difficult for Bank of England policymakers to raise interest rates, surveyors have said. However, on Thursday Pound Sterling has broken above the key 1.15 barrier against the Euro leaving the Pound-to-Euro rate at its strongest level for ten months; it seems that many more believe in a May rate rise than fear its delay.
In Germany exports fell more quickly than imports in February, narrowing the trade surplus to a seasonally-adjusted €19bn. Bank of Austria Governor Ewald Nowotny spoke of ending quantitative easing and raising the ECB’s deposit rate from -0.4% to -0.2%. The statement had little impact on the euro, perhaps because Mario Draghi’s team central bank were quick to distance the comments from the official policy of the Governing Council.
US nonfarm payrolls increased by 103k in March, 90k fewer than analysts had told investors to expect. Revisions to the two previous months took another 40k jobs out of the equation, leaving the total 130k below forecast. There was no way to put a good gloss on the numbers and in the following two hours the US dollar dropped a cent against the pound at the end of last week. The potential for a trade war continues to loom, but some placating and diplomatic words from both the US and China have eased the worst fears. U.S. consumer prices fell for the first time in 10 months in March, weighed down by a decline in the cost of gasoline, but underlying inflation continued to firm amid rising prices for healthcare and rental accommodation. The Consumer Price Index slipped 0.1 percent last month, the first and largest drop since May 2017, after climbing 0.2 percent in February, the Labor Department said. Towards the end of the week, the US dollar rose after the Federal Reserve hinted at a more aggressive interest rate stance in the near future.
The Loonie also fell after the release of the US employment data that brought them down; despite a 32k jump in employment in Canada, because of nature and strength of the links between the two nations. However, the Bank of Canada’s quarterly Business Outlook Survey yesterday said “sentiment continues to be positive”.
Australia’s builders opened the batting with the AiG Performance of Construction (purchasing managers’) Index. It was more than a point higher at 57.2.NAB’s measures of Australian business conditions and confidence did not hold up quite so well. NAB’s survey found current conditions six points less friendly at 14 while confidence was two points down at 7. As well as the news welcomed by environmentalists about an end to oil drilling in New Zealand, there was more good news when New Zealand’s Quarterly Survey of Business Opinion (QSBO) improved by a point to -11%.
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