The day was heralded as “Super Thursday” for the UK’s Bank of England. The day when the base rate decision, combined with any adjustment to the current asset purchase scheme, would be released. The BoE governor, Mark Carney, would also be holding court to deliver an inflation report. The rate remained the same, the asset purchase scheme remains static at £345b, whilst the inflation report delivered some interesting analysis.
The BoE now believes that the UK’s GDP in 2017 will beat Carney’s previous pessimistic projection of 1.4%, to deliver 2% GDP growth. Whilst they/he doesn’t expect inflation to rise beyond (and to peak at) 2.6% by 2019, with only a 2% rise in 2017. Curiously, this might illustrate that he expects the BoE to tamper with interest rates in the short term, given that many analysts are pencilling in a 4% inflation rise for the UK’s economy by the end of 2017.
Sterling plunged versus its major peers throughout the trading sessions and during the BoE’s various announcements. GBP/AUD crashed through S3, GBP/CAD breached S2. GBP/USD gave back the majority of the gains obtained due to the parliamentary discussions in Westminster during Tuesday and Wednesday, to finish at circa 1.2530 towards the end of the day.
Sterling’s fall was not solely as a consequence of the BoE announcements. Despite its best efforts to obfuscate, the UK government’s white paper, setting out its agenda and programme to exit from Europe, was in fact the hard Brexit many investors fear. It’s also heavily reliant on the benevolence of the remaining 27 members of Europe pro-actively working in Britain’s best interests to ensure there is no economic pain once Britain leaves.
On Friday its NFP day. Economists polled expect a modest 175,000 increase in U.S. Non Farm payrolls for January, in line with the recent trend, this is despite the ADP jobs number published on Wednesday beating expectations by some distance. The focus on the jobs report may therefore centre on wage inflation, should the number come in as anticipated.
The UK’s FTSE 100 closed up 0.47% on Thursday, DAX down 0.27%, CAC down 0.01%. The SPX fell 0.1% to 2,280 in New York. The DJIA down 0.03%. The SPX has retreated in five of the past six days, the declines have been limited to 1.1%.
The Dollar Spot Index lost 0.2% on Thursday, the decline in 2017 is now approaching 3%. EUR/USD rose by 0.1% to $1.0764, USD/JPY traded at 112.74. The pound weakened by 0.9% versus the USA dollar.
Gold advanced by over 1% to $1,227 an ounce in New York and as a future contract this price was the highest for a most-active contract since Nov. 17th. Towards the end of Thursday gold was trading at $1215 per ounce. Silver was trading at $17.43 towards the end of the day.
Economic calendar events for Friday February 3rd, all times quoted are London times.
09:30, currency effected GBP. Markit/CIPS UK Services PMI (JAN). The expectation is for a reading of 55.8, from the previous reading of 56.2. Investors will be monitoring this print for any evidence of post UK referendum economic weakness.
09:30, currency effected GBP. Markit/CIPS UK Composite PMI (JAN). The overall reading (for all the recent Markit PMIs) is expected to retreat marginally to 56, from the previous reading of 56.7.
10:00, currency effected EUR. Euro-Zone Retail Sales (YoY) (DEC). Retail sales are predicted to have fallen to 1.8%, from 2.3% previously.
13:30, currency effected USD. Change in Non-farm Payrolls (JAN). Economists polled expect 175k jobs created beating the December print of 156k. Any change on this could effect USD.
13:30, currency effected USD. Unemployment Rate (JAN). The USA unemployment rate is expected to remain static at 4.7%.
13:30, currency effected USD. Average Hourly Earnings (YoY). The expectation is that wage growth in the USA has shrunk to 2.7%, from 2.9% previously. This data will be monitored closely as if inflation in the USA economy is rising whilst wages lag, then GDP could be effected in an economy circa 80% dependent on consumer spending.
15:00, currency effected USD ISM non manufacturing Composite (JAN). The expectation is for a small correction to 57, from 57.2 previously. Any miss (to the downside), could effect USA equity markets and the value of the dollar significantly.