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Market News – 20 February 2017

Last week saw inflation reach a two and a half year high, mainly due to the cost of petrol and diesel, in turn hiking the cost of living.

The Office for National Statistics released figures showing that inflation had risen to 1.8% from 1.6% in December, just shy of the Bank of England’s 2% target. The fall in Sterling post-Brexit also continued to keep import prices high.

GBP

With rising inflation in the UK, analysts are suggesting that Sterling could be set for a rally. The prospect of the Bank of England cutting interest rates has fallen dramatically, with some analysts revealing that the BoE may even hike rates, potentially providing Sterling with a much-needed boost.

Further, most of the anticipated interest rate hikes by the Federal Reserve this year are already priced in to GBP/USD, according to a number of market participants.

The third monthly decline in a row for retail sales showed how rising inflation dampens consumer’s enthusiasm for spending.

Retail sales fell 0.3% in January, the ONS said on Friday, confounding all 24 forecasters in a Reuters poll who had expected a rebound from December’s slump.

EUR

Government officials in Athens are refusing to impose more austerity on their citizens. With a bail-out already in place, negotiations between Greece and the Eurogroup will this time be around compliance and future targets in order to get another tranche of money released – only €22bn of €86bn has been utilised so far.

Growth in the Eurozone was revised down in the fourth quarter last week, as more accurate data revealed a weaker than expected German economy.

Former Federal Reserve Chairman, Alan Greenspan, has issued a stark warning for the Eurozone. In a recent interview with a World Gold Council publication, he stated ‘’The European Central Bank has greater problems than the Federal Reserve. The asset side of the ECB’s balance sheet is larger than ever before, having grown steadily since Mario Draghi said he would do whatever it took to preserve the Euro. And I have grave concerns about the future of the Euro itself. Northern Europe has, in effect, been funding the deficits of the South; that cannot continue indefinitely. The Eurozone is not working.”

USD

Federal Reserve Chair Janet Yellen’s hawkish comments last Wednesday failed to support the Dollar, the next day incurring it’s largest one-day fall in over a fortnight. Yellen reiterated that the Federal Reserve still expects to raise its federal funds rate target three times in 2017.

With Yellen stating the above and also talking up the US economy, most market participants would have expected to see further Dollar strength. However, with a subdued reaction, it seems as if the markets worldwide are concerned with President Trumps fiscal policy ideas and potential trade wars.

The Wall Street Journal reported yesterday that President Trump is considering making changes to a government directive that would make the US trade deficit look bigger than it is. Manipulation of these figures would provide Trump with support to take action against China along with other trading partners of the US.

Rest of The World

Kazakhstan’s Tenge is set for gains of up to 15% this year, according to Bank of America Merrill Lynch, driven by the recent rally in oil prices – the Tenge is already up over 6% in the last 7 months.

Japan’s exports rose 1.3 percent in January, data showed this morning, a slowdown from the previous month due to the Chinese New Year. Economists warned against reading the figures negatively, stating that global demand should support Japanese exports this year, according to Bloomberg.

Australia’s job report has yet again beaten expectations. Employment rose by 13,500 beating the forecast of 10,000. Year to date, 103,400 workers have been added to the nations employment numbers.

Data This Week

Today:

  • German PPI (YoY) 2.4% v 1.9% forecast

Tuesday:

  • AUS RBA Meeting Minutes
  • AUS RBA Governor Lowe Speech
  • UK BoE Governor Carney Speech

Wednesday:

  • CAD Retail Sales
  • US FOMC Meeting Minutes

Thursday:

  • EU GDP(YoY) s.a
  • US Initial Jobless claims (Feb 17)

Friday:

  • FRA Consumer Confidence (Feb)
  • CAD CPI (YoY) Jan
  • US New Home Sales (MoM) Jan