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October

Merkel to bow out

Published: Tuesday 30 October 2018

  • UK Budget fails to lift Sterling
  • Bank of Canada governor to speak on rate hike rationale
​​By David Johnson

 
Having been wounded by losses in local elections, it was perhaps less of a surprise when German Chancellor Angela Merkel announced she would not run for re-election. Her open doors announcement, which was resented by many Germans, has haunted her ever since. However, for 13 years she has been a stabilising factor in the EU and that will be sorely missed. The Euro weakened on the news against everything other than the Pound. The slight improvement in French Q3 Gross Domestic Product (GDP) growth was balanced against a sharp drop in September’s consumer spending, so that really hasn’t had an impact. The forecast for the Eurozone GDP growth data, which we will get later this morning, is for a decline in the pace of growth and that is likely to weaken the Euro to some degree.
 
Sterling slips despite positive tone to Budget

Sterling fell a little across the board in spite of the Chancellor of the Exchequer’s Budget, which lifted both growth forecasts and spending and presented a very upbeat view of the UK’s future. That was perhaps unsurprising, given the political situation, as was the vehemence of the opposition’s reaction. The claim that the Chancellor has reserves necessary to deploy in the event of a ‘no deal’ Brexit was an interesting one. Whilst resorting to World Trade Organization (WTO) trade tariffs isn’t a desired outcome, it would be interesting to see what those deployments would look like. Theresa May has set a November deadline to start planning for a no deal Brexit, if that becomes necessary. To be fair, if the negotiators on both sides are worth their salt, there won’t be a deal until it is practically too late anyway. There is little on the UK data front today, so Sterling is likely to tread water in the backwash from US and EU data.
 
Eyes on US Dollar today

As for the US Dollar, consumer confidence data will be released later and a small drop in the confidence level is forecast, in spite of the US President’s declaration that a great deal with China is envisaged. As with all politicians, we have to suspect that any deal that is announced will be hailed as ‘great’. The other data that will be interesting is the US’s crude oil stocks. That can impact the price of oil and therefore the value of the USD.
 
Bank of Canada under fire for interest rate hike

This afternoon also brings a speech from the Governor of the Bank of Canada.  Their interest rate hike at their last meeting is still being questioned. Inflation appears to be relatively benign at 2.2% and economic growth is still well below optimum, so there are few arguments for this pre-emptive rate hike. It’ll be interesting to hear what Stephen Poloz has to say.
 
Fashion from the House of Norman Bates

And in the category of ‘just because you can, it doesn’t mean you should’, taxidermist, Jack Devaney, has launched a range of jewellery products including earrings made from stuffed dead mice. But why?

Lesson

A man staggered down a train and flopped down onto a seat next to a priest.
 
The man's tie was stained, his face was plastered with red lipstick, and a half empty bottle of gin was sticking out of his torn coat pocket. He smelled like a brewery slop tray. He opened his newspaper and began reading.
 
After a few minutes, the dishevelled guy turned to the priest and asked, "Hey, Father, what causes arthritis?"
 
The scowling priest said, “It’s caused by loose living, being with cheap, wicked women, too much alcohol and a contempt for your fellow man."
 
"Well that’s an interesting thing," the drunk muttered, returning to his paper.
 
The priest, thinking about what he had said, nudged the man and apologised. "I am sorry, my son. It’s not like me to be judgemental. How long have you had arthritis?"
 
"No need to apologise,” he said. “I don't have it, Father. I was just reading here that the Pope’s got it and so has the Archbishop of Canterbury."

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 11:00 EU: Preliminary Flash Gross Domestic Product 0.3% 0.4%
GBP 12:00 UK: Confederation of British Industry 23 27
USD 15:00 US: Conference Board Consumer Confidence 128.4 136.3
NZD 22:45 New Zealand: Building Consents 7.8% 7.8%

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