UK Economic Indicators

Inflation – Gone from 1.8% at the start of the year to now at 2.9%. Target rate is 2%

Interest Rates – Remains at 0.25%

Unemployment – From 4.7% at start of the year to now at 4.9%

GDP Growth


Currency

 

18th April – Pound advances against the USD and EURO following Theresa May calling a snap election. This election was called since there was some division in Parliament and in approach to making deals with the EU she will have a much stronger position and backing of her members to execute the strategy.

8th June – With no political party having an overall majority, Britain is in a hung parliament. Mrs May is hanging on as prime minister, despite questions over her leadership.

The surprise result has hugely complicated the Brexit negotiations with the European Union. European leaders fear that political disarray in London will damage the country’s ability to agree on an exit strategy.

The uncertainty is already hitting markets.
The British pound has fallen more than 2 per cent in London, hitting a new low against the dollar.
It has also fallen against the euro.

The Tories have underestimated Labour’s appeal to the younger generations who turned out in their numbers, mobilised by Brexit and Corbyn’s tuition fees appeal. With the Tories with less power, we can expect a softer Brexit which is good for the Pound.

June 22nd – A weakened Theresa May on Thursday night tried to regain the initiative on Brexit and some authority in Brussels by making a “fair and serious” offer to guarantee the rights of 3m EU citizens living in Britain.

The UK prime minister told fellow European leaders that no EU citizens living lawfully in Britain at the point it leaves the bloc in March 2019 would be asked to leave, nor would Brexit require families to be split up.

Those who had lived in Britain for five years would have “settled status” and would be eligible to the same healthcare, pensions, benefits and education rights as British nationals. This did not take the EU ministers by storm.

 

Brexit effect– One year on

  • Pound Sterling fell sharply last June and has lost ground since, often weakening as expectations rise of a harder than previously anticipated Brexit.
  • This has pushed inflation to a four-year high of 2.9% in May and started to squeeze household incomes as wages growth fails to keep pace. Real wages are losing purchasing power.
  • The number of new migrants coming to Britain has dropped back from just before the referendum, while the number leaving has risen.
  • So far overall economic activity has held up, with strong consumer demand fuelling better than expected gross domestic performance for the second half of last year, although figures for the first three months of this year were not so strong (0.2% vs 0.7% last quarter). A similar figure for Quarter April to June 2017 is expected.

Agriculture

£8bn UK agricultural industry

Concerns:

  • Two-thirds of agricultural food exports go to the EU, and many farmers want to retain tariff-free access. 
  • Growers are highly dependant on seasonal workers (90%) that come from central and Eastern Europe
  • UK farmers also rely on an annual €3bn from the EU’s Common Agricultural Policy for 55 per cent of their income. The government has promised to make up for this shortfall until 2020.

 

Manufacturing

10 per cent of the UK economy

Concerns:

Car manufacturers and pharma companies want a good deal going forward with trading in Europe

Services

80% of the UK economy and 40% of exports

Concerns:

International trade in services relies on factors such as staff mobility, recognition of qualifications and the ability to transfer client data across borders.

The City of London initially demanded a deal that preserved the “passport” regime that allows UK-based groups to sell across the EU, warning thousands of jobs were at stake.



US Economy Indicators

Inflation – Gone from 2.5%/2.7% at the start of the year to now at 1.9%. Target rate is 2%

Interest Rates – 0.75% to 1.0% in March, to 1.25% in June

Unemployment – From 4.8% at start of the year to now at 4.3%

GDP Growth

Currency Pair: GBP/USD

25th April – Dollar rises against the Sterling as Steven Mnuchin, the Treasury secretary, promises to slash corporate taxes from 35 per cent to 15 per cent and include a “one-time” cut-rate tax to induce companies to repatriate trillions of dollars of profits held overseas. The move is expected to incite growth that will offset the decrease in tax contributions

April 28thGross domestic product grew at a 1.2 per cent annual rate in the first three months of 2017, according to the Bureau of Economic Analysis, a sharp drop from 2.1 per cent at the end of last year.  The numbers were dragged down by a marked slowdown in growth of consumer purchases of goods including cars, as well as business cutting back spending on inventories. The slowdown was partly offset by firm exports, and improved business and housing investment.

May 3rdPound advances as Fed holds rates steady.  
Federal Reserve said it believes the recent slowdown in US growth is likely to prove temporary and that short term interest rate hike to still likely go ahead in June.

Core inflation has subsided marginally even as the jobs market continues to progress towards full employment.

May 5th – The pace of US jobs growth bounced back last month while the unemployment rate dipped to its lowest level since 2007, supporting the Federal Reserve’s view that the economy’s choppy first-quarter was probably a blip and bolstering Wall Street’s expectations for a June rate rise.

Meanwhile, the unemployment rate fell to 4.4 per cent from 4.5 per cent

May 10th – Comey chief of FBI dismissal – dollar drops Vs Sterling

June 14th
News comes in hours before Fed rate hike that US inflation has again undershot Wall Street expectations. Fed chair Janet Yellen and her colleagues still boost the target range for the federal funds rate of 1 to 1.25 per cent.

Yellen acknowledged the weaker inflation readings, but insisted they were significantly driven by one-off reductions in categories of prices such as wireless telephone services and prescription drugs. She expects inflation to still move up and stabilize at around 2 per cent in the next couple of years as well as growth to improve, that as of yet has ceased to impress.

 


Euro Economic Indicators

Inflation – Gone from around 2% at the start of the year to now at 1.4%. Target rate is 2%

Interest Rates – Remains at 0% and has been so for the past year

Unemployment – From 9.5% at start of the year to now at 9.3%

GDP Growth


Currency Pair: GBP/EUR

 

April 24th – French elections first round result in Macron getting considerable support, which boosting the Euro vs the Pound since a vote for Macron is a vote for France remaining in the EU. Le Pen the opposite. French equities rose and French bond yields dropped (price rose) following the first round results.

May 7thMacron wins the French Presidential election.

Promises;

  • To slash some 120,000 jobs from France’s bloated civil service
  • lower companies and households’ tax bill by €20bn i.e. cut the corporate tax rate from 33 per cent currently to 25 per cent, the EU average
  • Promised to extend the welfare state, for example by granting entrepreneurs and the self-employed eligibility for unemployment benefits.
  • Being an ex-banker, he has tried to capitalise on the Brexit vote by offering more favourable conditions for finance professionals and academics for working and living in France.

Mr Macron’s victory and the recovery of the Eurozone are likely to bolster the EU’s confidence going into Brexit talks, potentially making it easier to secure a deal.

Since Macron’s election  the Pound has been falling against the Euro.

May 28 – Emmanuel Macron’s election victory has given new impetus to France’s efforts to woo financial activity from London after Brexit, as officials pursue talks with at least 20 large companies to lure them to Paris. US banks that use London as their European hub are preparing to shift business elsewhere. The UK’s looming departure from the EU threatens to strip them of the “passporting” rights that allow them to seamlessly operate across the bloc from the City.

 

June 8th – The ECB kept interest rates unchanged at 0 per cent, whilst UK elections result in a hung parliament.  This was not the result the PM was expecting and what should have been a coronation for the Prime Minister and a sustained boost for the pound, has turned into a political and economic Mayday. With a huge cloud of doubt hanging over both Britain’s political future and the course of Brexit, the pound slid against the Euro.

 

19th June – Brexit talks begin and the pound slides once again.

Note = as part of Brexit, the EU wants to agree 100bn euro settlement with the UK and Barnier wants to settle the accounts for past payments the UK is still due and future payments to close off the books.

 


 

Brent Crude Oil

Oil is 2017’s worst performer, despite almost 2 million barrels-per-day of OPEC supply cuts.

Oil prices have dropped by more than 20 per cent since the start of this year – from around $55 per barrel to now around $45/46.

The sell-off has accelerated since May, when OPEC extended a deal with Russia to further limit output to support the oil price. Despite these measures however, high inventories are still being recorded in the US and Nigeria and Libya.

Many traders believe the price slide will only be arrested when US shale drillers are either forced to slow their expansion plans or Opec kingpin Saudi Arabia agrees to lead the cartel in bigger supply cuts. At the minute, production is not being cut enough for fear that large producers will start losing market share to rivals.


Gold

DXY – Dollar index

The dollar has steadily declined since the beginning of the year after news that Trump believed the currency was uncompetitive and there would be some scaling back from the Fed. This trend is said to be expected in  the long-term as investors have been bidding up the price of gold since the beginning of January as inflation has mounted within the US – gold being a hedge.

Rate hikes by the Federal Reserve as a result of strengthening household spending and steady job growth have negatively impacted gold prices

While uncertainty surrounding geopolitical tensions in the Middle East and elections in Europe have kept gold prices elevated for a significant part of the year, steady economic growth in the U.S. and a rally in the stock markets have acted as dampeners on the prices of the metal. Expectations of U.S. economic growth are driving investors away from gold. The potential enactment of President Trump’s legislative agenda – particularly a massive infrastructure overhaul – and an additional rate hike by the Fed will likely keep gold prices in check in the coming months. However, the lack of certainty regarding legislative progress in Washington should prevent prices from declining considerably.

 

Sources: FT, Investing.com, Tradingeconomics.com, Bloomberg

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