Sterling continues to weaken – 18th April 2016
Sterling Continues to Weaken
The recent theme of Sterling weakness continued on Friday as the UK construction industry contracted by 0.3% in February, the second month in a row the sector has shrunk. Ongoing Brexit fears, recent stamp duty changes, alterations to the tax on second home ownership and buy to let are now seemingly beginning to weigh on this sector. House price pressure persists though with UK house prices increasing by 7.6% in the year to February, but down from the 7.9% recorded for the year to January but is that a pause in growth or wobble?
From the US we saw two conflicting pieces of data at the end of last week. There was a strong uplift in business activity levels in the New York manufacturers report for April 2016, which climbed 9.6 points, representing its highest level for more than a year. The University of Michigan sentiment index however fell to 89.7, the lowest reading for 6-months, down from 91 reported in March. The drop relates to the lack of American wage growth in spite of the continuous steady gains in employment numbers. Wage growth will of course play a major part in the FOMC’s interest rate decision making , with the lack of growth possibly meaning US rate hikes will not be so pronounced.
As the weekend got underway focus on the G20 and Doha oil talks was always going to be of major importance. As the G20 in Washington came to a close the finance ministers and central bankers were happy to share a more upbeat analysis of current global economic conditions, which is in stark contrast to the assessment following the February meeting held in Shanghai when global world markets were in turmoil.
The IMF did revise global growth prospects downwards again, but reiterated that it was alert to the current risks, with the UK’s possible exit from the EU, Brazil engulfed by political scandal, Greece still struggling with debt issues and China’s slowdown all taking a toll on global investment and confidence conditions. Whilst the list is long the IMF remains determined to rally collective endeavour and not be alarmed.
The Doha oil talks held in Qatar, with most of the world’s largest oil producers in attendance, was offered up as a chance to help stabilise the oil price with a possible freeze to production. Saudi Arabia, the world’s largest crude oil producer, had stated it would be willing to freeze output but only if all major producers do likewise. With Iran absent from the gathering, agreement to cap production did not materialise, with the oil price plunging in early Asian trade. The Canadian dollar alongside other commodity currencies traded sharply lower as oil producers keep pumping out oil at the same rate.
There is nothing by the way of ecostats today with the weeks highlights Thursday ECB meeting.