The list of concerns for traders grew again on Thursday but at least US economic growth wasn’t one of them. Weak Chinese data fanned fears over the health of the world’s second largest economy. Whilst US Trade Representative Robert Lighthizer said there was still significant ground between the US and China to close a trade deal. As a result, risk off dominated across the morning and European shares fell southwards on the open
Meanwhile an abrupt end to the Trump – Kim Jong Un Hanoi summit and mounting geopolitical tension between Indian and Pakistan are events being watched by traders. Whilst these latter two events are not directly impacting on the markets, history tells us that there both situations which could escalate quickly. Traders are certainly keeping them on the radar.
US GDP cooled at slower rate than forecast
All this negativity was overshadowed by US economic growth which topped forecast in the fourth quarter. US GDP increased 2.6% year on year in the final quarter of 2018. Whilst this is significantly below the 3.5% growth recorded in the third quarter and 4.2% recorded in Q2, it was ahead of the 2.3% forecast helping lift sentiment.
Delving deeper into the numbers, the data shows that business investment picked up which could indicate stronger growth for longer going forwards. The dollar pared losses on the results and the Dow spiked briefly higher after a negative start. With the US economy still showing signs of strength and the Fed happy to wait patiently to hike rates, investors remained calm. However, its worth keeping in mind that this data is delayed owing to the US government shutdown and concerns are growing that the first quarter of 2019 could see growth slowing further.
Euro below $1.14 & pound dips below $1.33
The dollar pared earlier losses and headed back towards 96.00 versus a basket of currencies, although failed to move convincingly into positive territory. The EUR also slipped back below $1.14, a level not seen since early February as better than forecast US GDP data overshadowed stronger than expected German inflation figures. Investors will now look ahead to another slew of data due tomorrow, including eurozone inflation data and US PCE and ISM Manufacturing numbers.
The stronger dollar meant the pound slipped back below $1.33 snapping a five-day winning streak. Brexit continues to dominate sterling traders’ focus. Whilst a vote on no deal Brexit and delaying Brexit are offering a solid floor to the pound, concerns over Theresa May’s ability to bring a more palatable deal to ministers was weighing on sentiment. With under two weeks to go until the meaningful vote, a government spokesman has said there is still significant work to be done.