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Trade talks help confidence

USD

The backlog of data held back by the shutdown began to be unwound yesterday with the release of November's new home sales. They were punchy numbers, with a monthly increase of 16.9%. Also out yesterday were the Chicago purchasing managers' index, nearly nine points lower at 56.7, and weekly jobless claims, which exceeded forecast. After initial hesitation the USD moved higher through the early New York session before settling during the afternoon and through the night. The president's appearance on TV to talk about the trade negotiations with China suggested that the discussions are going reasonably well, though few expect any big breakthrough in the near future.

Amongst a long list of ecostats today, the ones to watch are the manufacturing sector purchasing managers' index readings and the employment report. Nonfarm payrolls are forecast to have risen by 165k in January, rather fewer than the average 220k increase achieved in 2018.

EUR

Whilst there were no ugly figures in this morning's list of European purchasing managers' index readings, there was very much a mix of good and bad. The latter were from Italy and Germany: both were below the line at 50 which divides growth from contraction. Italy managed a woeful 47.8, while Germany did slightly better at 49.7. The good readings came from Spain at 52.4 and France at 51.2. For the euro zone as a whole, the manufacturing PMI came in at just-slightly-positive 50.5.

The EUR moved higher in the early London session despite more bad news from Germany's Deutsche Bank. It could have been that investors were expecting the euro zone inflation data to come in above forecast. One of them indeed did: while the headline rate was unchanged at 1.0%, the core rate beat expectations at 1.1%. It was not enough to extend the EUR's rally though: the single currency is still 0.1% lower on the day against the USD.

CAD

For the first time this week, the Canadian statisticians had something to say. Unfortunately, it was not of any great help to the CAD. The raw material and product price indices showed the two moving in opposite directions. Raw material costs increased by 3.8% in December while product prices fell 0.7%. The monthly take on gross domestic product was in line with forecast but unimpressive: Canada's economy shrank by 0.1% in November.

The oil price was of no assistance either; WTI crude was 1.3% lower on the day. The result was another day of no-change for the CAD.

GBP

The latest development on the Brexit front is an effort by the ruling Conservative party to secure the support of the Labour opposition. The government is said to be offering inducements on employment rights and environmental protection as well as money for deprived areas that voted to 'Leave' in the referendum. By doing so, they hope to persuade Labour MPs to back the government. The leader of the opposition, Jeremy Corbyn appears to be staying out of the discussions.

Britain's contribution to today's ecostat agenda was the manufacturing sector PMI. It was lower on the month and below forecast at 52.8, contributing to a decline for sterling in the early London session. The GBP is 0.6% lower on the day.

JPY

Investors were reassured by the idea that trade talks between the US and China are making progress. Armed with that reassurance, they saw little need to seek the safety of the JPY or its safe-haven sidekick the Swiss franc. The two are unchanged against one another and the JPY is 0.3% lower against the USD.

The Japanese data released overnight had no long-lasting effect on the JPY. The jobs/ applicants ratio was unchanged at 1.63, the unemployment rate was on target at 2.4% and the Nikkei manufacturing PMI was in the growth zone and ahead of forecast at 50.3.

USD firmer on average but not by much

USD firmer on average but not by much

EUR edges lower despite above-target inflation

EUR edges lower despite above-target inflation

CAD flat, unassisted by Canadian data

CAD flat, unassisted by Canadian data

GBP lower again on Brexit confusion

GBP lower again on Brexit confusion

JPY lower on trade reassurances

JPY lower on trade reassurances

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