Down Goes the British Pound

November 15, 2018

With British Prime Minister Theresa May facing a vote of no confidence and several of her cabinet ministers resigning in protest against her Brexit deal, sterling slumped 1.5% overnight against both the dollar and euro.

Weak British retail sales data were also released today, showing an unexpected 0.5% on-month drop in total sales (+2.2% on year)  and a 0.4% slide in core retail sales volume (+2.7% on year). A summer improvement in trend has abruptly disappeared, partly in response to unseasonably warm early autumn weather.

The dollar elsewhere lost 0.5% vis-a-vis the Australian dollar, 0.2%  against the yen, kiwi, yuan, and peso and 0.1% relative to the loonie and Swiss franc. EUR/USD is unchanged.

Share prices in the Pacific Rim rebounded 1.7% in Indonesia, 1.6% in Hong Kong, 1.4% in China, and 0.4% in Taiwan, Singapore and The Philippines. But the Japanese Nikkei-225 lost 0.2%. Stocks in Europe are mixed, with drops of 0.7% in France, 0.2% in Switzerland, 0.3% in Italy, and 0.1% in Spain but upticks of 0.2% in Germany and the U.K. where the 10-year British gilt yield tumbled ten basis points.

Ten-year sovereign debt yields also have declined 3 basis points in Germany and the Netherlands and by 2 basis points in Switzerland, the U.S. and France, but Greece has seen a 4-basis point increase, and the Japanese 10-year JGB yield is unchanged at 0.10%.

Gold is unchanged, while WTI oil has rebounded 0.3%.

Two Asian central banks raised benchmark interest rates by 25 basis points today at scheduled monetary policy reviews.

  • Bank Indonesia’s 7-day reverse repo  rate was lifted to 6.0% from 5.75%. This unexpected tightening brings the total increase over the last half year to 200 basis points and was accompanied by newly announced regulations on rupiah-denominated interest rate derivatives.
  • The Filipino overnight reverse repo rate now becomes 4.75%, bringing its total increase since May to 175 basis points. As in Indonesia, overnight lending and deposit rates were also raised by 25 basis points today.

Economic growth slowed in the summer in most countries using the euro but not in France, which today released GDP showing faster growth of 0.4% on quarter. Personal consumption and business investment enhanced the growth rate by 0.5 percentage points, and net exports contributed a further 0.1 percentage point. Inventories exerted a 0.2-basis point drag, however, and on-year GDP slowed to 1.5% from 1.7% in the prior quarter and 2.7% in the year through the summer of 2017.

Euroland’s seasonally adjusted merchandise trade surplus narrowed 20% on month to a 2-month low of EUR 13.4 billion in September and exports dropped 1.6% but imports rose 0.2%. The unadjusted January-September surplus of EUR 143.1 billion compares with a surplus of EUR 169.2 billion a year earlier. Global trade tensions pose a continuing headwind.

Dutch unemployment held steady in October at September’s near-decade record low of 3.7%, but seasonally adjusted Swedish unemployment in October rose to 6.3%.

Australia’s jobless rate stayed at 5.0% last month, when a greater-than-forecast 32.8K increase in employment occurred. The labor participation rate rose to 65.6%.

China reported an 8.6% on-year rise in new house prices, which constitutes a 15-month high. On-year growth in foreign direct investment also accelerated, reaching 3.3% in October.

A much greater-than-forecast $1.82 billion Indonesian trade deficit in October with on-year import growth of nearly three times export growth seems to have been a reason behind the aforementioned Bank Indonesia interest rate hike.

Turkish unemployment rose for a fourth consecutive month, climbing to 11.1% in August from 10.8% in July and 10.2% in June.

South African wholesale turnover rose 0.7% in September and accelerated to a 12-month increase of 6.0%.

A bunch of released U.S. data today showed

  • An insignificant uptick in new jobless insurance claims last week to a still-low 216K.
  • A greater-than-forecast 0.8% advance in total retail sales (0.7% excluding motor vehicles and parts), which lifted the year-on-year increase to a strong 4.6%.
  • A 3.3% October upsurge in imported fuels (30.3% from a year earlier) boosted overall import prices by 0.5% on month and 3.5% on year. Non-fuel import price inflation, however, was only 0.7% last month. Export prices rose 0.4% on month and 3.1% on year.
  • The Philly Fed manufacturing index dropped to 12.9 in November from 22.2 in October, but the Empire State manufacturing index improved 2.2 points to a reading of 23.3.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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