Prime Minister May finally delivered her “Article 50 letter” in ceremonious fashion on Wednesday, to the president of the European Council, Donald Tusk, setting out the UK’s position regarding leaving the Union. Naturally, the sobering event was low key and Donald Tusk indicated intense sadness, versus the triumphalism May attempted to display.
The U.K. now begins a two year process eventually ending with ties severed. And as many of us in the analyst community will never tire of stating; it’s only when the U.K. actually leaves that the collateral damage can be surveyed and measured. Until such time the UK’s pound will rise and fall, as will the UK’s equity markets and overall economy, but it’s only after exit that any major disruption will finally be felt. With some economists polled by Reuters predicting a fall of circa 10% in GDP over a four year period and a fall of GBP/USD to circa 115 and a rise in EUR/GBP to 93, or parity. For now GDP/USD lost circa 0.1% on Wednesday, to end the day close to 1.2434 and EUR/GBP lost circa 0.4%, to end the day close to 0.8653.
The major impact the UK’s economy has endured since the June referendum decision, has been a significant increase in inflation and a rise in import/input prices for producers; PPI (producer price inflation) is currently running at circa 20%, a rise of 14% in just over a year. Whilst CPI (inflation) is running at circa 2.3%, a rise of 2% in just over twelve months. If input prices stay at the 20% inflated level, then estimates suggest the CPI (inflation) figure could rise to 5.8% and if wages remain static at only a 2% improvement YoY, not only will the UK’s consumers be hard pressed to thrive, unemployment could begin to rise once more; suppliers and manufacturers could cut jobs, as they fail to find domestic buyers for their products and services.
Germany is also experiencing a sharp spike in import prices, the annual import price index revealed on Wednesday was 7.4%, up from 6% in January. In other European calendar news the Swiss ZEW expectation survey came in at 29.6, significantly ahead of the 19.4 previously registered. The UK data registered on Wednesday indicated that mortgage approvals had slipped slightly to 68.3, from an expected 69.1, whilst consumer credit beat expectations of £1.3b per month, coming in at £1.4b.
In the USA, mortgage applications fell -0.8% last week, whilst pending home sales rose by 5.5% in February, but fell by -2.4% YoY. Crude and gasoline inventories have fallen substantially according to the latest DOE data, causing a significant rise in the price of WTI crude, which closed the day up approx. 2.2%, at circa $49.10 a barrel. Although at a total of 534 million, the reading still represents the highest weekly level recorded, stretching as far back as 1982. Gold ended the day in ‘recovery mode’, at circa $1252, having fallen to circa $1247 early in the Asian session. Silver ended the day up, at circa $18.21.
The DJIA failed to continue its momentum of Tuesday, closing down 0.20%, with the SPX closing out up 0.11%. In European news the STOXX 50 closed up 0.29%, the UK’s FTSE up 0.41%, Germany’s DAX up 0.44% and France’s CAC up 0.45%. Equities rose in Europe, as the euro sold off versus many of its peers, EUR/GBP at 0.865, EUR/USD fell by circa 0.4%, at 1.0764. USD/JPY ended the day close to flat, at circa 111.03.
Economic calendar events for March 30th, all times quoted are London (GMT) time.
09:00, currency impacted EUR. Euro-Zone Consumer Confidence (MAR). There is a raft of Eurozone ‘soft data’ published on Thursday at 9:00am, which traders would be well advised to pay attention to, the consumer confidence reading is predicted to show no change at -5.
12:00, currency impacted EUR. German Consumer Price Index (YoY) (MAR). CPI is expected to have fallen back slightly in Germany to 1.8%, from 2.2% previously.
12:30, currency impacted USD. Gross Domestic Product (annualised) (4Q T). USA GDP is forecast to have risen to 2.0%, from the 1.9% in the previous quarter.
12:30, currency impacted USD. Initial Jobless Claims (MAR 25th). The weekly claims spiked to 261k in the previous week, a reduction back to a median figure of circa 245k, is predicted for the latest update.