Headlines
- UK GDP rises most since 2007 in 2014 – Q4 GDP slows to 0.5%.
- Sterling down a cent vs. Euro – Tsipras forms Greek government.
- Disappointing durable goods weigh on US Dollar – Fed statement due at 19:00.
- ‘Aussie’ rallies on CPI result – Core figure beats estimates.
Sterling
It was reported yesterday morning that British gross domestic product increased at the fastest rate since 2007 last year. However, the 2.6% annual GDP score was undermined by a weaker-than-anticipated fourth quarter print of 0.5%, confounding expectations of 0.6% and marking a noteworthy slowdown on the 0.7% expansion registered during the third quarter. The Office for National Statistics’ Chief Economist, Joe Grice, said it was ‘too early to say’ if economic output will continue to cool in 2015. The bulls will draw hope from the fact that Britain’s dominant service sector continued to tick along at a sturdy pace of 0.8%. However, the bears may be concerned by the slender 0.1% expansion in manufacturing – the worst since the start of 2013 – which speaks to the inherent weaknesses of the Eurozone, Britain’s largest trading partner.
(http://atlas.media.mit.edu/profile/country/gbr/)
Sworn enemies George Osborne and Ed Balls used the data release as an excuse to continue spouting partisan platitudes. Mr Osborne saw the figures as a sign that the conservatives’ economic plan was ‘on track’, just as he did when the oil-related drop in inflation took place, or when sturdy domestic growth was unable to prevent a widening of the British trade deficit.
His adversary, Mr Balls, reminded us that working people’s ‘wages are down by £1,600 a year since 2010’, which incidentally, is about the time (he started in 2011) that the labour politician started interjecting the remark, almost at random, whenever questioned on the health of the economy.
Euro
The Pound to Euro exchange rate dipped by around a cent yesterday in reaction to the lower-than-forecast fourth quarter UK GDP report.
Over in Greece, new Prime Minister Alexis Tsipras unveiled his cabinet of ministers. Whilst the group was largely comprised of academics, most of the media attention focussed on Yanis Varoufakis, the 53-year-old self-proclaimed ‘accidental economist’ and internet sensation who was sworn in as finance minister. In the lead-up to the election Varoufakis described the troika-imposed austerity measures as ‘economic waterboarding’ and when his party, Syriza, won he paraphrased Welsh poet Dylan Thomas on his blog:
‘Greek democracy today chose to stop going gently into the night. Greek democracy resolved to rage against the dying of light’.
Varoufakis is described as an agile and intelligent economist with a constructive attitude. It will be interesting to see how he deals with the European Union finance ministers, who have been so adamant in recent months that the Hellenic nation must stick to its current debt obligations. Although Greek bond yields soared yesterday, other Eurozone nations were shielded from the storm by the prospect of Mario Draghi’s latest stimulus scheme. The prevailing view amongst investors is that Greece will remain part of the Eurozone.
US Dollar
Sterling rallied by around 0.7 cents yesterday as traders hedged against a dovish statement from the Federal Reserve. Fed Governor Janet Yellen is due to give a speech at seven o’clock this evening in which she is almost certainly going to maintain the Fed’s 0.25% benchmark interest rate. However, with many major central banks, most notably the Bank of Canada and the European Central Bank, loosening monetary policy over the past few weeks, it is possible that the Fed could opt to delay its tightening cycle to help oil the cogs in the global economy for a little while longer.
The ‘Greenback’ was also hurt by a terrible US durable goods reading of -3.4%, which was massively lower than the +0.3% gain predicted beforehand. If major US ecostats continue to print in this vein then it will make the prospect of a Fed rate hike even less likely.
Sterling touched a fresh five-and-a-half-year high against the Canadian Dollar yesterday even though British data disappointed. With global oil prices already at multi-year lows, and seemingly on a slippery downward slope, the Canadian Dollar is in dire straits at the moment and traders appear unwilling to do anything but send it lower. Friday’s Canadian GDP report is tipped to show that the domestic economy stagnated during November, which is only likely to compound the ‘Loonie’s’ misery.
The Pound rose by 1.5 cents yesterday as fears of a rate cut from the Reserve Bank of Australia escalated ahead of the fourth quarter CPI data. However, Sterling gave back all of those gains and more in the minutes immediately after the inflation announcement. On a yearly basis, Australian consumer prices cooled from 2.3% to 1.7%, and on a monthly basis inflation slowed from 0.5% to 0.2%. However, the core CPI indicator actually beat expectations by coming in at 0.7% compared to forecasts of 0.5%, and this is what sent the ‘Aussie’ surging back against the Pound.
GBP/NZD appreciated by over half a cent yesterday to reach a new 48-day high in anticipation of a cautious central bank statement from the Reserve Bank of New Zealand later this evening. In light of the recent bout of monetary easing in Europe and in Canada, the RBNZ is expected to tone down talk of raising rates from the current level of 3.50%.
Data Released Today
19:00 USD Federal Open Market Committee Rate Decision (JAN 28) 0.25%
20:00 NZD Reserve Bank of New Zealand Rate Decision (JAN 29) 3.50%