News & analysis


Sterling spent most of the day Friday on the offensive after a positive headline on the Services Purchasing Manager Index for December at 51.2 set a positive mood. Unfortunately for sterling the entire picture is less upbeat, with the composite of the Services, Manufacturing and Construction PMI pointing towards a growth of merely 0.1% in December. Tempers are flaring up meanwhile in UK Parliament as Labour backbenchers and pro-European Tories unitedly proposed an amendment to treasury legislation that would stop the financing for preparing a no-deal. This understandably didn’t go down well with Brexiteers, who would not only would welcome a no deal, but also consider not preparing for a hard Brexit weakens the UK’s negotiation position with the European Union. For action on the data front we’ll have to wait for the monthly Gross Domestic Product and Manufacturing Production readings on Friday, although the run up to the Brexit vote in Parliament next week will undoubtedly make sure we will not be bored until then.


Disappointing data set the single currency back against most of the G10 currencies on Friday, as both inflation and Final December Purchasing Manager Index didn’t meet their marks. Headline inflation sank to its lowest level in a year and a half due to lower oil prices, a fall that is likely to intensify over the coming months as supply problems of refined petroleum products within Europe are slowly lifting. Together with the composite PMI that was lower than previous month and the median forecast at 51.1 downside risks continue to stack for the Eurozone. The Unemployment rate on Wednesday may prove some antidote to this, as rising wages due to the tightening labour markets is one of the main upside risks to monetary policy and the euro at the moment. European Central Bank Meeting Minutes are due on Thursday.


The greenback was strapped on a rollercoaster on Friday after a smashing labour market report was quickly followed by dovish remarks by Federal Reserve Chair Jerome Powell. Eventually USD softened especially against risk sensitive currencies like AUD and NZD, showing that market appetite for risk was having a good day. The US economy added another 312.000 jobs in December, while also wage growth beat forecasts at 0.4% month on month, setting up everything for a hawkish tone by Powell. Powell, however, was interpreted as rather dovish by markets in his speech that followed when he said “there is no preset path” for Fed rate policy and the Fed listens ”very carefully to markets”. Opening the door towards potentially fewer rate hikes this year, combined with news the US and China will meet today for renewed trade talks, did boost moods, and – not to forget – US equity markets by over 3%. How long this renewed optimism lasts is uncertain, however, as the US government shutdown since the 26th of December is still far from being easily resolved. Today sees the ISM non-Manufacturing PMI at 15:00 GMT with US-Sino trade talks throughout the day. The Trade Balance, Federal Open Market Commission Meeting Minutes and Consumer Price Index on respectively Tuesday, Wednesday and Friday will be the main economic events for USD for the rest of the week.


The improved risk sentiment and rising oil prices gave a much welcome boost to the loonie on Friday, having it gain 2% against USD over two days while it slowly puts some distance between itself and the 19-month lows seen earlier this month against USD. Canadian labour market data added to CAD’s momentum, with Unemployment being lower than expected at 5.6% and Employment growth marginally higher with 9.3K jobs added in December. Wages nevertheless appear incapable to profit from tightening labour markets, with annualized hourly earnings growth stuck at 1.49%, well below the inflation rate. This puts the Bank of Canada for somewhat of a conundrum for their rate decision on Wednesday, with inflation being sufficiently strong to warrant a rate hike, but wage growth showing inflation pressures are not yet running red hot. This one of the reasons why the pricing in of future rate hikes by the BoC remains low for now.