The FTSE certainly has a slow start to the week, trading within an uninspiring 20-point range for much of the day. Miners were the standout performers, thanks to solid gains by copper. The only half attempt at a move northward by the index came thanks to the sliding value of the pound, around midday. The decline was short lived versus the euro, however stronger than forecast US consumer spending figures meant that the dollar has been able to extend its gains moving through the US session piling the pressure on GBP/USD.
US consumer spending picks up in December
Sluggish inflation has been troubling the Fed for most of 2017, with several Fed officials citing slow inflation as a reason to hold off from raising rates too quick in 2018. So PCE figures, the Fed’s preferred measure of inflation, moving marginally higher in December to 0.2%, up from 0.1% in November, was a relief for the market. On a yearly basis PCE came in as forecast at 1.5%, although still significantly below the Fed’s 2% target, which it has failed to hit since mid-2012.
Inflation expectations have increased following the release and the dollar moved higher versus a basket of currencies, firming its position above 89, as it looks to take out 89.50. GBP/USD slid through $1.41 on the release of the PCE figures and is currently finding support at $1.4050-20, but with Brexit headlines starting to flow again and some distance still remaining between the UK and the EU over a transition deal, it looks dubious as to whether it this level will hold. Rumours of no-confidence for Prime Minister Theresa May are also doing little to help the ailing pound, which could head straight towards $1.40.
Dow dumps 100 points
In a complete role reversal, the US equity indices are experiencing in a rare down day. The volatility index, which is often referred to as the fear gauge, moved sharply higher as the Dow dumped over 100 points and the S&P dipped 0.5%. Nasdaq listed Apple has been the biggest decliner stateside following reports it could cut its iPhone X production. However, with earning season in full flow this week and earnings beating expectations 78% of the time, today’s downward trajectory of US indices is unlikely to stay with us for the rest of the week.
After a quiet start to the week, tomorrow could hold a bit more excitement for the European session, with Q4 eurozone GDP, German inflation and UK net consumer credit. Whilst the US will focus on consumer confidence and President Trump’s State of the Union address.