Brexit and a Vote of No Confidence Keep the GBP Front and Center

Earlier in the Day:

Economic data released through the Asian session was on the heavier side this morning, with key stats including electronic card retail sales figures out of New Zealand, consumer confidence numbers out of Australia and machinery order figures out of Japan.

For the Kiwi Dollar, electronic card retail sales slumped by 2.3% in December, month-on-month, falling beyond a forecasted 0.4% decline, following a revised 0.5% fall in November. According to NZ Stats

• Spending fell in four of the six retail sectors. The largest decline was recorded in the durable goods industry, down 4.4% (NZ$58m), followed by the fuel industry, which fell by 8% (NZ$50m).
• The slide in durable goods was the largest since October 2010.
• Declines were also seen in the sales of clothes and shoes, down 2.1%.
• Spending on hospitality was flat, while sales of supermarket food and drink rise by 0.6%.
• Core retail spending, excluding vehicle related industries, fell by 1.5%, reversing a 0.3% rise in November.
• Quarter-on-quarter, retail card spending was down 0.2% in the 4^th quarter, partially offsetting a 2.1% rise recorded in the 3^rd.
• For the quarter, spending rose in four of the six retail sectors, the fuel industry seeing the largest move, down 4.7% (NZ$92m). Offsetting the decline was a 1% (NZ$62m) rise in the sales of food and liquor.

The Kiwi Dollar moved from $0.68161 to $0.68160 upon release of the figures, before easing to $0.6810 at the time of writing, a loss of 0.10% for the session.

For the Aussie Dollar, the Westpac Consumer Sentiment Index fell by 4.7% to 99.6 in January, reversing December’s 0.1% rise with interest.

• The fall below 100, which reflects pessimists outnumber optimists, was the first since November 2017.
• Year-on-year, the Index was down 5.3%.
• The decline was attributed to a number of factors, including:
  • A continued decline in house prices.
  • Weaker than expected growth numbers.
  • The ongoing trade war.
  • Political uncertainty.
• Looking at the sub-indexes:
  • The economic outlook, next 12-months slid by 7.8%, the biggest fall since Sep-15.
  • The economic outlook, next 5-years fell by 5.9%.
  • Finances vs a year ago fell by 5.9%, while finances next 12-months fell by 3.1%.
  • The time to buy a major household item sub-index fell by 1.3%.
  • On the labour market front, the Unemployment Expectations Index rose by 2.2% to 123.6, pointing to job less fears sitting well below a long run average of 130.
  • On the housing front, the time to by a dwelling index rose by 4.1% to a 4-year high, while the House Price Expectations Index fell by 4.1% to 95.9, the weakest level since records began back in May-09.

The Aussie Dollar moved from $0.72033 to $0.72011 upon release of the figures, before easing to $0.7192 at the time of writing, down 0.12% for the session, support for the Aussie Dollar coming from moves by the Chinese Government to spur growth.

From an RBA perspective, the consumer sentiment numbers will raise some concern, the weaker housing market and high household debt levels likely to impact domestic consumption near-term.

For the Japanese Yen, November machinery orders rose by 0.8%, year-on-year, coming in ahead of a forecasted 0.4% rise, whilst well below a 4.5% jump in October. Month-on-month, orders stalled, which was far worse than a forecasted 3.1% rise, following a 7.6% increase in October.

The Japanese Yen moved from ¥108.662 to ¥108.616 upon release of the figures. At the time of writing, the Yen stood at ¥108.4 against the Dollar, up 0.26% for the session, support coming risk sentiment turns sour in the early hours.

The Day Ahead:

For the EUR, it’s a quiet day ahead, with key stats limited to finalized inflation numbers out of Germany and Italy, which are unlikely to have a material impact on the EUR.

Risk sentiment through the day will provide direction, with Draghi’s negative comments on the Eurozone economy pinning back the EUR to sub-$1.14 levels early on in the day.

At the time of writing, the EUR was down 0.12% to $1.1399.

For the Pound, it was a shocker for the British PM on Tuesday, with 432 votes going against the Theresa May Brexit deal, only 202 in favour. The vote against not only reflects sentiment towards Brexit, but also towards the British PM. Opposition party leader Corbyn wasted no time in slating a vote of no confidence, which will take place this evening.

A loss for the Tory party would lead to a General Election and, with the Tories in such disarray, a change of government would be more than likely, which would be considered a near-term negative for the Pound.

On the data front, economic data scheduled for release includes December inflation figures, which will likely be brushed aside, the markets focused on Parliament. BoE Governor Carney may garner some attention in the early part of the day, but even Carney is unlikely to be able to calm the markets through the day.

At the time of writing, the Pound was down by 0.18% to $1.2838, with today’s no confidence vote the key driver.

Across the Pond, economic data scheduled for release includes December retail sales and import and export price figures, with retail sales figures being the key driver through the day.

FOMC Members across the board have shifted on the policy front to leave the Dollar on the defensive. Positive numbers could give the Dollar a boost, though may need to be impressive to have a long lasting impact, the Oval Office and the extended government shutdown also there to consider.

At the time of writing, the Dollar Spot Index was down 0.01% to 96.027.

For the Loonie, it’s a quiet day on the data front, leaving the Loonie in the hands of crude oil prices and market risk sentiment through the day, an early fall in crude oil prices pinning back the Loonie early on in the day.

The Loonie was down 0.05% to C$1.3272 against the U.S Dollar at the time of writing.