Sterling Strength and Economic Data Out of Sink
Tapering Ahead
US futures and European markets are trading lower as investors are anxious about the impact and costs of Hurricanes Harvey, Irma and Jose. The Japanese final GDP q/q which missed the forecast isn’t helping the sentiment either. The Chinese trade balance also took a wrong turn choking the bulls further.
Sterling Strength and Economic Data Out of Sink
Many thought that the weakness in the British pound would not only stimulate the export but also the growth for the UK economy. That could have been the case if Brexit wasn’t the major hurdle and given that the politicians have returned from their holidays, they are still stuck on the very same issue as before they left. The British Chamber of Commerce has also acknowledged that the weakness in the pound is not providing the kind of tailwind which was initially expected. The Consumer spending is simply abated and inflation is outpacing the job growth, an environment which is toxic for the economy. The UK GDP is going to see less colour from the net trade and this would be the primary confirmation of how a lower currency failed to add the amount of value which was widely expected.
The UK soft data, the PMI’s and business survey, initially confirmed that investors can weather the Brexit storm relatively better, but the current trend in the manufacturing and industrial production numbers is worrisome. At 09.30 BST, we have the manufacturing production number and the forecast is relatively more optimistic with the reading of 0.3%. If you look at the construction output and industrial production, then the picture becomes duller and the forecast for today for both numbers (0.3% and 0.2% respectively) isn’t something to cheer about.
Do not be fooled by the strength of the Sterling-dollar which is trading above 1.31, a lot of this is simply the weakness in the dollar. The price is retracing from its highs and if it breaks the support of 1.31, the move to the level of 1.3060 is highly likely.
Tapering Ahead
If you think that Draghi has failed to keep the lid on the euro’s strength in his press conference yesterday, then certainly you are making a mistake. Draghi certainly has the ability to punch above his weight and we know that very well. The policy maker did make a reference to the currency’s volatility and exchange rate. However, the primary and significant focus remained towards more pressing affairs such as domestic strength. The Euro dollar algos went bananas as Draghi started to speak despite the fact that the president was reluctant to spell out the month, date and pace of the tapering process.
