Brexit Worries Depress Sterling Against Euro

February 27, 2017

Sentiment toward Euroland was buoyed by French opinion polls and February economic sentiment data.

  • Emmanuel Macron’s voter support in France improved. The final round of France’s presidential election is likely to pit the centrist Macron against the populist anti-EU National Front candidate, Le Pen.
  • Economic sentiment in the euro zone edged 0.1 point higher to a 71-month high of 108.0. Industrial sentiment climbed 0.5 point. Consumer confidence climbed 1.4 points. Service sector confidence rose 1.0 point. Construction increased 2.6 points. And the business climate index rose 0.6 points to 0.82, its best level since July 2011.

There’s been a press report that Scotland may hold a referendum to break away from the U.K. over the decision to leave the EU. This could impact the Brexit negotiations.

The dollar has appreciated 0.4% against sterling but declined 0.2% relative to the euro. The dollar is unchanged against the Swiss franc and yuan, 0.4% weaker relative to the peso, but 0.2% firmer versus the yen, loonie and kiwi.

Great investor uneasiness precedes tomorrow’s Trump speech to the joint houses of congress. The newly inaugurated president is expected to provide detail to his promises of scrapping Obamacare, overhauling taxes including the request for a border levy, massive deregulation, and increased spending on defense and domestic infrastructure. America is going through basic training, intended to break apart all existing administrative systems so that a new image can then be built. This process can not move forward if blocked by watchdogs, so the intelligence community, press, and judiciary are being neutered. If done effectively, the Congress is likely to support President Trump’s agenda far more readily than it did for other recent presidents. Tuesday’s speech will be a necessary step in this plan but could upset the strong vote of confidence for Trump so far shown by financial markets.

Stocks fell in Asia, with losses of 0.9% in Japan, 0.8% in China, 0.6% in Hong Kong and 0.4% in South Korea. In other equity markets, bourses fell 0.3% in Australia and are down 0.8% in Greece and 0.1% lower in Switzerland, Spain, and France.

West Texas Intermediate crude oil rose 0.8% to $54.41 per barrel.  Comex gold is 0.2% softer at $1,256 per ounce.

The Aussie dollar dipped 0.2% against its U.S. counterpart in spite of much stronger-than-forecast Australian corporate profits, which rose 20.1% from 3Q to the fourth quarter and where 26.2% higher than a year earlier.

The M3 stock of money in the euro area posted on-year growth of 4.9% both in January and on average in November-January. The contribution from M1 diminished, but was countered by a bigger boost from components in M2 by not M1. Private credit and private loans were 2.7% and 2.4% higher than in January 2016.

Austria’s manufacturing purchasing managers index settled back 0.1 point to a robust reading of 57.2 in February. January had seen the highest PMI in 70 months.

Spanish CPI inflation held steady at 3.0% in February. Likewise, Icelandic CPI inflation of 1.9% in February was also the same as in January. Finnish PPI inflation accelerated to 3.9% in January from  2.4% in December.

Hong Kong’s trade balance in January was distorted by the Lunar New Year holiday. The deficit was HKD 12.34 billion after a shortfall of HKD 45.48 billion in December.

Finnish consumer confidence edged down 0.2 points to a reading of 20.8 in February. Portuguese consumer confidence rose 1.8 points to -4.4, and Portuguese business sentiment edged 0.1 higher to 1.3.

In Brazil, the start of Mardi Gras was marred by a truck driven by a drunk that plowed into crowd, injuring over two dozen people.

U.S. durable goods orders rebounded as expected, rising 1.8% in January, but core non-defense orders excluding aircraft unexpectedly fell on month.

The Bank of Israel holds a policy meeting today at which the key central bank interest rate is expected to be held at 0.1%.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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