Global equities took another step lower on Friday following weak economic data from China and Europe which fuelled fears over a global economic slowdown. The European session started on the back foot after weaker than forecast retail and manufacturing data from China overnight. Throw softer than forecast European PMI data into the mix and investors are starting to get extremely jittery about the health of the global economy.
Oil majors and miners were the biggest drag on the FTSE as commodity prices slid lower following the Chinese data disappointment; the weaker pound offered some support to the international components of the FTSE.
Pound Moves a Step Closer to Pricing in No Deal
Sterling snapped a two-day winning streak as Theresa May returned from Brussels empty handed. May’s inability to secure any further reassurances from EU Leaders over the Irish backstop has upped the chances the chances of a no deal Brexit. Arithmetically May was already facing an impossible battle to push Brexit through Parliament – the latest developments have certainty not improved her position. Currently the pound is not fully pricing in a no deal Brexit, but today’s losses take sterling another step closer to the no deal scenario.
Euro Dives as Weak Data Reinforces Draghi’s Dovish Message
The euro sold off in the previous session following cautious comments from Draghi. The ECB President confirming that risks were aligning to the downside sent the euro skidding lower. Today’s Eurozone PMI figures supported Draghi’s gloomy predictions. Eurozone business activity ended 2018 on a sour note, expanding at the slowest pace in over 4 years. Trade tensions and violent unrest in France saw new business orders growth slow to a standstill. German expansion slowed to a four year low indicating that economic growth for Europe’s largest economy in the final quarter could be weak. All in all, the figures made for a depressing read and reinforced concerns over the heath of the eurozone economy. The overriding concern for the market is that Drahi is tightening policy as the eurozone economy sits on the brink of recession.
Dollar Surges On Better Than Forecast Retail Sales
Magnifying losses in the pound and the euro was a significantly stronger dollar. Better than expected retail sales sent the greenback soaring. Retail sales increased by 0.2% in November, ahead of the 0.1% forecast. Strong retail sales correlate with strong economic growth and higher inflation, putting the dollar bulls firmly in control. Attention will now move to the Fed meeting next week. The Fed are broadly expected to raise rates for the fourth time this year. However, doubts are growing as to how the Fed plans to move across 2019.