Quiet enough in FX
It was quiet enough in FX yesterday, even as equity markets were under pressure and bond yields headed lower, although the yen recovered some ground amid a warning of possible intervention to support the currency. The dollar is slightly firmer overnight, as Donald Trump tells Reuters he has no plans to fire Jerome Powell (despite the Department of Justice criminal investigation into the Fed Chair), trading at around $1.1630 and $1.3440 vis-a- visa the euro and sterling respectively, while EURGBP continues to hover just above £0.8650. UK GDP data released a short while ago were a touch firmer than expected, but they aren’t having any impact on the pound.
US equity markets fell for a second consecutive session led by technology stocks, with the Nasdaq shedding more than 1%, while European markets were broadly flat on the day. Bond yields headed south as stocks were under pressure. US and UK 10-year yields fell by around 5bps and 6bps respectively while equivalent German yields were down around 3bps, with some dovish interest rate comments by Bank of England MPC member Taylor also contributing to the decline in UK yields.
The UK economy was a bit stronger than expected in November according to this morning’s data. GDP rose by 0.3% on the month (versus +0.1% forecast) with a rebound in services output and a big jump in industrial production more than offsetting a decline in construction. Growth on a three-month basis was still sluggish though at just 0.1% over the September-November period (versus 0.2% over the three months to August).
US retail sales in November came in slightly ahead of forecast though there was a downward revision to the October outturn. Sales rose by 0.6% (in nominal terms) on the month, following a small decline in October, while the pace of growth eased a touch over the three months to November. Meanwhile, the Fed’s latest Beige Book reports that “overall economic activity increased at a slight to modest pace” over the past six weeks or so, with employment “mostly unchanged” during this period.
Fed member Paulson says she sees “inflation moderating, the labour market stabilizing and growth coming in around 2% this year… if all of that happens, then some modest further (downward) adjustments (to interest rates) would likely be appropriate later in the year.”
Looking to the day ahead, economic data due includes industrial production in the Euro area and weekly jobless claims and import/export prices in the US. A few ECB/Fed members are scheduled to speak over the course of the day.