Sterling Hovering Lower around $1.30 Amid Brexit Confusion

October 21, 2019

Saturday’s planned Brexit vote in the House of Commons didn’t happen. Instead, MPs requested that Prime Minister Johnson get another deadline extension from the EU. Boris Johnson sent an unsigned letter to the EU that only complained that an extension would be toxic and now seeks to force a Brexit vote today. No response yet from the EU, and parliament also has not formally ruled on the legality of a vote today.

The dollar this Monday is down 0.4% against the kiwi and 0.3% versus the Aussie currency. Net overnight  dollar movements against other currencies are minimal.

Stock markets in Europe have so far today risen 0.7% in Germany, 0.4% in Italy, 0.3% in Spain but just 0.1% in the U.K., France or Switzerland. Japan’s Nikkei rose 0.3%. Elsewhere in the Pacific Rim, equity markets rose 0.8% in Singapore, 0.6% in India, 0.2% in South Korea, 0.1% in China but not at all in Australia, New Zealand, or Hong Kong.

Ten-year sovereign debt yields increased 4, 3, 2, and 1 basis points in the U.K., Germany, U.S. and Japan. West Texas Intermediate crude oil fell 0.8%, but the price of gold is little changed.

China’s central bank did not further cut the one-year loan prime rate (LPR) of 4.20% as had been expected. A reduction still seems probable in the near term. The rate had been cut by 6 basis points in August and 5 basis points further in September.

House price inflation in China slowed to a one-year low of 8.4% in September from 8.8% in August and a 2019 high of 10.7% in April-May.

The all industry index of Japan — a monthly proxy of real GDP growth — was unchanged in August and a 0.5% 12-month decline, its weakest year-on-year comparison in five months. The one-year comparisons by sector are a drop of 4.7% in industrial production and increases of 0.6% in services and 0.1% in construction.

German producer prices in September fell 0.1% both from August and a year earlier. Energy dropped 6.8% on year, while all other producer prices collectively rose 0.5%.

Budget to GDP and public debt to GDP ratios in the euro area were published today. The budget was in surplus last year by 0.5% , down from surpluses equal to 0.9% of GDP in 2017 and 2.0% in 2015. Outstanding debt dropped to 85.9% of GDP in 2018 from 90.8% in 2015. Among the biggest economies in the joint currency area, budget-to-GDP ratios in 2018 ranged from deficits of 2.5% in both France and Spain to a surplus of 1.9% in Germany. Although Greece ran a surplus for its third consecutive year, the debt-to-GDP ratio continued to swell, reaching 181.2% of GDP. Dutch and German debt, by contrast, equaled 52.4% and 61.9% by contrast and are receding.

The British Rightmove house price index was 0.2% lower than a year earlier in October.

Norway’s quarterly business confidence index dropped to a 9-quarter low of 2.5 in the third quarter of 2019 from 5.1 in 2Q and 9.3 in the third quarter of 2018.

Polish retail sales posted a 3-month low on-year advance of 5.3% in September.

Greece’s current account surplus of EUR 1.874 billion in August represents a 4-year high.

It’s election day in Canada and not clear if Prime Minister Trudeau will hold on to power.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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