The UK government budget deficit contracted modestly to £4.8bn in December, down from £5bn in Dec 18 as receipts and spending increased by over 2.0% over the year which suggests solid activity. Headline UK CBI industrial trends orders index beat expectations in rising to -22 for January, up from -28 in December. But the business optimism data shook the Pound from it’s malaise printing the sharpest quarterly gain more than 60 years and the strongest reading since April 2014. Optimism rose sharply to 23 in the 3 months to January against -44 the previous quarter.Optimism surrounding exports saw stark improvement and investment intentions also improved. The market immediately moved to reverse the pricing in of a Bank of England interest rate cut next week and Sterling saw significant gains.
The Pound pushed to 2-week highs above 1.3150 on the Dollar and monthly highs around 1.1870 against the Euro. The House of Lords passed the EU Withdrawal Act paving the way for it to be signed into law and allowing the January 31st Brexit date. The Pound has seen little correction at market open despite risk appetite being a little more fragile today.
The US Chicago Fed national activity index declined sharply to -0.35 for December from 0.41 in November with the main negative impact from production data as monthly volatility continued. Existing home sales increased to an annual rate of 5.54mn for December from 5.35mn previously and above consensus forecasts of 5.42mn.
US political developments again had no significant market impact. Markets were continuing to monitor coronavirus developments with reports that the Chinese authorities had asked Wuhan citizens not to travel from January 23rd due to the spread of coronavirus.
German bond yields moved lower at the US open which undermined Euro support. Italy’s 5-star leader Di Maio’s resignation as party leader also injected a fresh element of uncertainty into Italian politics and it dipped to lows close to 1.1070 against the Dollar. Additionally, there was no immediate evidence that Chinese coronavirus concerns were underpinning the Euro.
A more optimistic stance in the Euro, could provide an element of much needed support. There is little overall change as we begin Thursday’s trading session with the Euro at the 1.1080 as the Dollar holds steady and markets continue monitoring risk conditions.
Data to watch
All Day - All Currencies - WEF Meetings
12:45 - EUR - Main Refinancing Rate
12:45 - EUR - Monetary Policy statement
13:30 - EUR - ECB Press Conference
16:00 - USD - Crude Oil Inventories
Posted in Daily Market News on Jan 23 2020