Pockets of economic pressure are building and popping up with increasing frequency. In Germany, the Eurozone’s largest economy, exports contracted 0.4% mom and worryingly for its trading partners German imports shrunk1.6% mom. On the other side of the world, in Australia reports about pressure in the housing market are growing more frequent and were today given further credibility with the release of data showing that building approvals dropped 9.1% mom in November – the fourth drop in the past five months.
Slowing global growth is seemingly weighing on CPI-inflation and market talk of central banks hiking rates is growing more faint. Swiss CPI-inflation fell to a 10-month low of 0.7% yoy in December and more importantly from a global perspective Chinese CPI-inflation slowed to a 5-month low of 1.9% yoy in December.
This bearish turn in global growth and inflation is feeding into Federal Reserve thinking with a number of FOMC members in the past 48 hours suggesting that further rate hikes may not be justified at this juncture and the Dollar has slipped to its lowest point since mid-October. Most currencies have benefited from this slump in the Dollar, with the EUR/USD cross up above 1.15.
However, there has been little respite for Sterling which in trade-weighted terms remains near the bottom of a multi-month range. Prime Minister May’s government has lost two consecutive votes in parliament in the past two days which have chipped away at its ability to drive the Brexit agenda in the event of the House of Commons voting against the draft EU deal next Tuesday.
