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Sterling holds up as B deal nears

Published: Thursday 21 February 2019

  • German data slips again
  • US v China trade deals getting close
By David Johnson

Sterling had another positive day, clinging to the €1.15 level and above $1.30 in spite of some MPs quitting the conservative party to join the rebel alliance. That strength was helped by a much more positive than expected Confederation of British Industry (CBI) report based on industrial orders. The forecast was for an index around minus 5 but the final figure was plus 6. So the balance of the 550 companies’ surveyed see increased orders ahead. Now, if that was a BBC report, it would end with the immortal words, ‘despite Brexit’ but we are better than that.
That data contrasted rather starkly with poor German manufacturing data which measures the value added by the car and technology companies concerned. It is a complex measure and I won’t bore you with the maths but suffice to say it is the worst result since 2013. Pressure from China, Silicon Valley and other new technology sources are putting pressure on traditional German manufacturing. It is said that German car makers are struggling to adapt to the new technologies and electric or hybrid car production. If the US and China can crack a solid trade deal in the coming weeks, that pressure will only build.
We heard this morning that French and German retail prices deflated again last month and the German manufacturing Purchasing Managers’ Index (PMI) was below the crucial 50 level  and worse still than last month’s 49.7 reading. The Euro remains weak. 
In the US, reasonable mortgage and housing data was overshadowed by the release of the minutes from the last Federal Reserve rate setting meeting. The bad weather meant the press did not have advanced notice of the report in the normal ‘press lock up’ as it is known. So there was a lot of scan reading and hurried typing going on at 7pm UK time. In the end, the minutes said the Fed would stop unwinding their quantitative easing treasure chest and keep the base rate on hold for the time being. The markets must have been expecting something similar because the US Dollar barely twitched on the news and, if anything, is a tad stronger this morning. That has more to do with rumours of a potential group of 6 trade deals between the US and China.
Overnight news included a reasonable employment report from Australia but the AUD is still reeling from the move dovish tone taken by the Reserve Bank of Australia at their last meeting.
And credit ratings agency, Fitch is mulling whether to downgrade the UK’s AA rating over Brexit fears. UK data continues to confound that kind of pessimism but you have to heed the words of credit ratings agencies even though they all told us mortgage backed securities were triple A rated just as the bubble burst in 2007 and they were proven less than worthless.
And I believe we have seen the ultimate Daily Mail headline this morning; combining celebrity, Royalty and Money with shoulder chips. I quote ‘Living the high life! Meghan returns to UK from £330K New York trip on £200K PRIVATE JET after Serena Williams and Amal Clooney threw her a baby shower at £57K-a-night penthouse’. It ticks all the boxes doesn’t it.  If only Meghan had worn something owned by Diana, it would be almost too perfect.

Don’t wanna

It was the first day of the new term. Harry's mother went into his bedroom and said, "Come on Harry, get up now. You have to go to school today. New term and all that."

"But I don't want to go to school," replied Harry, "I want to stay in bed. Why do I have to go to school? The bigger boys bully me and the girls call me ugly and smelly and the teachers are all horrid"?

"Because," answered his mother, with a sigh, "you are 35 years old and a headmaster.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Flash Manufacturing Purchasing Managers' Index 50.5 50.3
EUR 09:00 EU: Flash Services Purhcasing Managers' Index 51.2 51.4
GBP 09:30 UK: Public Sector Net Borrowing 2.1b -11.1b
EUR 12:30 European Central Bank Monetary Policy Meeting Accounts    
USD 13:30 US: Durable Goods Orders 0.7% 1.6%
USD 13:30 US: Core Durable Goods Orders -0.4% 0.3%
USD 13:30 US: Unemployment Claims 239k 228k
USD 13:30 US: Philly Federal Bank Manufacturing Index 17.0 14.1
USD 15:00 US: Existing Home Sales 4.99m 5.01m
USD 15:00 US: Conference Board Leading Index -0.1% 0.1%

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