Andrew Twells

Market Commentary

For the week ending 26 January 2018
Report by Andrew Twells
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Andrew Twells

UK economic data continue to be in reasonable shape, despite all of the uncertainty over Brexit. The CBI’s Business Optimism Index moved into positive territory with a reading of +13 in the fourth quarter of 2017, up from -11 in the previous quarter. Growth in manufacturing output and domestic and export orders all picked up and employment grew at the fastest pace since mid-2014, with further growth expected next quarter. Also, investment intentions for both buildings and plant and machinery moved back above average.

This was backed up by the official unemployment figures, which reported a further drop in the claimant count. Worker pay continued to increase with average earnings excluding bonus standing 2.4% higher than a year ago (2.5% higher including bonus). Real wages are still being squeezed as price inflation is currently higher than this. However, the gap has been closing.

Gross Domestic Product (GDP) figures are due to be released tomorrow and are expected to show growth of around 1.7% per annum. Although UK growth is likely to be lower than most of our peers in 2018, higher growth overseas should be considered positive, rather than a cause for concern.

Most stock markets took a pause from their recent period of growth and pulled back a percent or two, although US markets continued to hit new highs. The real action was in currency markets. Sterling hit $1.43 against the US Dollar, the highest level since the EU Referendum. It went up by 2 cents on Wednesday alone which is a large intraday move.

Whilst the UK data may have contributed to this move, it is more of a Dollar story. The Dollar has been losing value against most major currencies and this appears to be a deliberate ploy by the US administration. In an apparent attempt to talk down the Dollar, the US Treasury Secretary said that “…a weaker dollar is good for us as it relates to trade and opportunities…”. This coincided with Donald Trump imposing tariffs on imported solar panels and washing machines in a further bid to help US manufacturers. Whilst the World can cope with fluctuating exchange rates, an emerging trade war could be bad news for us all.