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US to dominate market news again today with Federal Reserve statement

Published: Wednesday 31 January 2018

  • Eurozone Gross Domestic Product misses forecast
  • Sterling recovers on slight consumer data improvements
  • Australian inflation up but lower than forecasts
By  David Johnson

Euro hit by lacklustre data

The Euro took a hit yesterday when the first estimate of Q4 Gross Domestic Product (GDP) growth for the currency sharing bloc missed market forecasts. The growth was 2.6%, which isn’t bad, but the markets had been looking for a little more. The Euro was also hit by a fall in the Business Climate Index and the Economic Sentiment Index. So, whilst economic activity is rising, there is less confidence about the future in the Eurozone and that isn’t what the EU wants to hear. This morning’s inflation data will be crucial for the value of the Euro. We are expecting 1.3% as an annualised figure; down from last month’s 1.4%. Anything less will weaken the Euro, but the opposite is also true.
Sterling boosted by better data

Sterling rose, though, after credit data showed consumers were borrowing more and that was in contrast to most analysts’ predictions of a fall. Personally, I was surprised by the market consensus that borrowing would have fallen. With interest rates on a gradual upward path, it seems logical to me that people would be topping up or restructuring their debt in case rates go up faster than expected, but I’m not an analyst... clearly! Overnight news that British Consumer Confidence was slightly less bad than last month didn’t affect the Pound; and neither did a further decline in the British Retail Consortium (BRC) Shop Price Index. There is no other data from the UK today, so we’ll have to content ourselves with the politics. Let joy be unbounded. Yay!
Australian Dollar drops down to disappointing data

We heard overnight that Australian Consumer Inflation rose in December by 1.9% in the year but that was below forecasts for a two percent gain. The Australian Dollar weakened sharply after the announcement and the GBPAUD rate is up to around A$1.75 at the interbank level this morning. Traders are assessing whether there is any scope for an Australian interest rate hike this year and this will add no weight to that expectation at all. A small drop in the Chinese Manufacturing Purchasing Managers’ Index (PMI) won’t have helped matters, either. China is Australia’s number one export market after all and China buys a lot of Aussie raw materials. If they are manufacturing less, their demand will be lower.

 US takes centre stage once more

This afternoon’s news is dominated by the Federal Reserve’s interest rate and policy statement. We are not expecting a change in the US base rate, but breath will be bated over the statement. The markets have factored in three rate hikes this year, so any hint of a change to that expectation will move the USD.
Blue Moon?

And we will all be treated to the sight of a lunar eclipse. Sadly, we in the UK won’t see the detail, but those in North America will; and apparently those in the North of England and parts of Scotland will be able to see some the “Super Blue Blood Moon”. The moon moving in the shadow of the Earth is painted red; hence the name of Blood Moon. As you can imagine, there is plemty of ancient superstition about such events. A 1621 guide to healthy living gives this advice, "When thou goest to thy bed... draw close the curtaines to shut out the Moone-light, which is very offensive and hurtfull to the braine, especially to those that sleepe." This has been a public health announcement by Halo Financial.  I hope you get a clear sky tonight, though. 
Clever jokes
Q)       Why did Karl Marx hate Darjeeling and Earl Grey?
A)        Because all proper tea is theft.
Q)       What do you get if you put root beer into a square glass?
A)        Beer
Rene Descartes is at a party and someone asks him if he wants a drink. He says, “I don’t think so” and disappears.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 10:00 EU: Consumer Price Index Flash Estimate 1.4% 1.3%
EUR 10:00 EU: Core Consumer Price Index Flash Estimate 0.9% 1.0%
EUR 10:00 EU: Unemployment Rate 8.7% 8.7%
USD 13:15 US: ADP Non-Farm Employment Change 250k 186k
CAD 13:30 Canada: Gross Domestic Product 0.0% 0.4%
CAD 13:30 Canada: Raw Materials Price Index 5.5% -2.2%
USD 13:30 US: Employment Cost Index 0.7% 0.6%
USD 15:00 US: Pending Home Sales 0.2% 0.5%
USD 19:00 Federal Open Market Committee Funds Rates 1.50% 1.50%
USD 19:00 Federal Open Market Committee Statement    

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news