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Survival of the fittest

Published: Tuesday 25 September 2018

  • Japanese economic prospects strong
  • South Korea-US trade deal struck
  • Economic boost for Euro
​​By Denzil Rickerby

The US Dollar was dealt a brief blow overnight as the Euro perked up. But the USD quickly righted itself and as of this morning’s trading is now today’s strongest currency. The Swiss Franc is currently the weakest currency, followed by the beleaguered Australian Dollar.

Japanese economic prospects strong

The latest Bank of Japan (BoJ) meeting minutes show that the central bank’s members expect the Japanese economy to continue to expand in 2018. They predict that growth would likely continue “partly supported by external demand” for 2019 and 2020, but that the pace would likely slow, “due to a slowdown in domestic demand.” Most BoJ members agreed that Consumer Price Inflation (CPI) is likely to increase gradually up to 2%, as “firms’ stance gradually would shift toward further raising wages and prices”.

South Korea-US trade deal struck

South Korean President, Moon Jae-in, and US President, Donald Trump, officially signed a bilateral trade agreement yesterday, at a fringe meeting of the New York UN summit. South Korea has pledged to exempt up to 50,000 US cars from safety requirements; double the current amount specified. There was also an agreement to improve customs procedures and make changes to drug prices. The US tariffs against South Korean trucks of 25% will be extended from 2021 to 2041. The US is providing a specific exemption for South Korean steel from the tariffs announced in March 2018, which accounts for approximately 70% of imports.

Economic boost for Euro

The Euro received a brief boost overnight, as European Central Bank (ECB) President, Mario Draghi, spoke with an upbeat tone in his European Parliament Committee on Economic and Monetary Affairs (ECON) address. His outlook on growth remains positive, predicting “an ongoing broad-based expansion of the Euro Area economy”, with “high levels of capacity utilisation”. Draghi also pointed out the downside to the current economic situation, that, “labour markets are tightening with signs of labour shortages in some countries and sectors” and “higher income supports private consumption”. Draghi countered this by predicting that, “underlying inflation is expected to increase further over the coming months as the tightening labour market is pushing up wage growth.”

An important note of warning was observed when Draghi noted “domestic price pressures are strengthening and broadening”. These pricing pressures will be an important factor in industrial and retail growth and for businesses trading within the EU.

Pressure for Brexit deal builds

The UK Prime Minister has just six months until the agreed Brexit date and still has to reach an agreement with the EU on the UK leaving the bloc. Mrs May’s Chequers plan has been publicly rejected by both EU negotiators and members of her own government.

Meanwhile, the opposing party in the UK, Labour, has said it will apply six tests to any Brexit deal, and if the deal does not meet the criteria, they will vote against it.  According to an address from Kier Starmer at the Labour Party Conference today, "If Theresa May brings back a deal that fails our tests – and that looks increasingly likely – Labour will vote against it. No 'ifs', no 'buts'.”

Light on data today…

The economic calendar is quite light today. Main features are US House Price Indices and Consumer Confidence results.
Special day

My girlfriend isn’t talking to me because apparently I ruined her birthday.

I’m not sure how I did that - I didn’t even know it was her birthday…

Today's Major Economic Releases

Market BST Data/Event Previous Expected
USD 15:00 US: Conference Board Consumer Confidence 133.4 132.2
USD 15:00 US: Richmond Manufacturing Index 24 22
NZD 23:45 New Zealand: Trade Balance -143m -930m

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