Brexit and U.S – China Trade Talks Put the GBP and USD in the Spotlight

Following Theresa May’s decision to delay the parliamentary vote scheduled for later today, Brexit and U.S – China trade chatter will be in focus.
Bob Mason
Brexit concept 3d rendering

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side, with key stats including November electronic card retail sales out of New Zealand, 4th quarter BSI Large Manufacturing Conditions numbers out of Japan and 3rd quarter house price figures and November business confidence numbers out of Australia.

Later in the day, new loan and outstanding loan growth numbers will be released out of China alongside FDI numbers that will also influence the broader market, new loans to provide some guidance on economic activity through the 4th quarter.

For the Kiwi Dollar, month-on-month electronic card retail sales fell by 0.4% in November, reversing October’s 0.1% increase.

According to figures released by NZ Stats,

  • Falling fuel prices were a drag on spending, with spending on fuel sliding by 7.2% compared with October 2018, the largest fall since November 2008, the fall in spending coming as average fuel prices fell by around 20 cents a litre.
  • Spending increased in four of the retail sectors, the largest rise being recorded in hospitality and durables, which saw spending up by 1.3% and by 0.8% respectively.
  • Year-on-year, electronic card retail sales rose by 4.6%, easing off from a 6.2% rise in October.

The Kiwi Dollar moved from $0.68725 to $0.68693 upon release of the figures, before rising to $0.6881 at the time of writing, a gain of 0.15% for the session.

For the Japanese Yen, the BSI Large Manufacturing Conditions index fell from 6.50 to 5.50 for the 4th quarter.

The decline was largely expected, with concerns over the effects of the U.S – China trade war and signs of a slowing down in economic growth, in key economies, weighing on sentiment.

The Japanese Yen moved from ¥113.170 to ¥113.219 against the U.S Dollar upon release of the figures. At the time of writing, the Japanese Yen stood at ¥113.06, up 0.24% for the session.

For the Aussie Dollar,

The house price index fell by a quarter-on-quarter 1.5% in the 3rd quarter, which in line with a forecasted 1.5% following a 2nd quarter 0.7% decline.

According to figures released by the ABS:

  • Melbourne property prices recorded a 3rd consecutive quarter fall, down by 2.6% and a first annual decline (-1.5%) since the 3rd quarter of 2012.
  • Sydney price fell by 1.9%, with the fall in prices across the two states no longer being confined to the more expensive end of the real estate sector, declines also being noted in the medium and lower tiers of the market.
  • Tightening credit availability and falling prices weighed on activity across both investor and owner occupiers.
  • Year-on-year, residential property prices fell by 1.9%, with declines being recorded in Sydney (-4.4%); Darwin (-4.4%); Melbourne (-1.5%) and Perth (0.5%).

The NAB Business Confidence Index came in at 3.00, easing from October’s 4.00. Looking at the numbers:

  • Both business conditions and confidence eased back in November, with business confidence falling below its long run average.
  • Forward orders fell in the month to sit below its long run average for the first time since late 2016.
  • The retail sector was the main area of concern being the only sector to report deteriorating business conditions.
  • Falling profitability and lower turnover weighed, while employment found some upside.
  • Business conditions eased significantly in construction and declined in transport, manufacturing and mining.
  • Conditions in the retail sector reflected a weak consumer consumption environment that has continued into the 4th The weak spending was attributed to weak wage growth, high levels of household debt and falling house prices.

The Aussie Dollar moved from $0.71869 to $0.71863 upon release of the figures, before rising to $0.7200 at the time of writing, a gain of 0.14% for the session.

In the equity markets, news of trade talks between Beijing and the U.S administration hit the wires in the early hours, driving a sharp rebound in the Asian equity markets, with the Hang Seng recovering more than 100 points to move into positive territory at the time of writing, 0.08%. The Nikkei also bounced back, up 0.14%, with the CSI300 up 0.42%.

The Day Ahead:

For the EUR, economic data scheduled for release includes 3rd quarter nonfarm payroll figures out of France and December economic sentiment numbers out of Germany and the Eurozone.

Focus will be on the December economic sentiment numbers out of Germany, though we can expect some influence from the Eurozone headline number ahead of Thursday’s ECB monetary policy decision and press conference, a convergence in policy outlook having provided the EUR with a boost at the start of the week.

At the time of writing, the EUR was up 0.07% to $1.1364, with today’s stats the key driver through the day.

For the Pound, there’s Brexit trauma following Theresa May’s decision on Monday to pull the plug on today’s parliamentary vote. The British PM’s decision to delay the vote and attempt to look for a renegotiation with the EU was met with EU member states saying that there would be no renegotiation. EU leaders have said that they would be prepared to make assurances over the backstop plan, Ireland and the risk of a hard border continuing to be a bone of contention.

The markets will now need to wait until Thursday, where a meeting has been called to discuss Theresa May’s proposals and also for EU member states to discuss their readiness for a no-deal outcome.

Economic data scheduled for release through the early part of the day includes October’s average earnings, unemployment numbers and November claimant count figures that will likely be brushed aside, with Brexit chatter and noise from parliament likely to be the key drivers through the day.

At the time of writing, the Pound was up 0.06% to $1.2569.

Across the Pond, it’s another quiet day on the data front, with key stats limited to November wholesale inflation figures. Following a shift in sentiment towards FED policy for next year, softer inflation numbers could really hit the Dollar ahead of tomorrow’s consumer price numbers.

Outside of the numbers, any news updates on Hua Wei CFO Meng Wanzhou’s arrest and Chinese response will also have an influence, with any rise in tensions likely to favour the Dollar.

At the time of writing, the Dollar Spot Index was down 0.08% to 97.138, with news of trade talks between the U.S and China hitting the wires leading to a shift in rest appetite through the Asian session.

For the Loonie, there are no material stats scheduled for release through the day, leaving the Loonie in the hands of market risk sentiment and direction in crude oil prices, both likely dictated by chatter from Beijing and the Oval Office.

The Loonie was up 0.03% to C$1.3394 against the U.S Dollar at the time of writing.

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