Global Themes

Lower pound finally beginning to pay dividends for UK exporters

  • Risk aversion takes hold of markets amid uncertainty over Trump’s policies
  • British export orders jump to highest level in three years on the back of weak pound
  • Reserve Bank of New Zealand OCR announcement tonight

Market News

Risk aversion takes hold of markets amid uncertainty over President Trump’s policies.
After a period of relative calmness in financial markets, investors are beginning to panic as concern mounts that US pro-growth policies will not sail through congress.

Investors are ducking for cover as confidence in the US dwindles. As a result the US dollar and S&P 500 have both taken a hit with the S&P 500 losing more than 1 percent for the first time since before the US election. Markets are favouring currencies such as the EUR and JPY and exiting riskier currencies such as the NZD, AUD and CAD.

Traditionally the pound may have also felt some pressure under such market conditions, however a very strong CPI print yesterday showing 2.3% inflation over the past year has kept the pound on a firm footing


British Export orders jump to highest level in three years on the back of weak pound.
According to the latest CBI Industrial Trends Survey export order books were the highest since December 2013 with expectations for growth at a two decade high.

The survey of 423 firms showed strength across the economy lead in particular by pharmaceutical and mechanical engineering sectors. The depreciation in the pound since the Brexit referendum has made UK exports more competitive in the global market which now seems to be filtering through to the order books.

The concern in maintaining this competitive advantage is that cost pressures for these companies continues to increase. Domestically we are seeing inflation accelerate, meaning that factory gate prices will also have to begin rising to accommodate this. 

New Zealand

Reserve Bank of NZ OCR announcement tonight.
New Zealand’s Reserve Bank still facing a tug of war between a rampant housing market and a cooling economy.

The Reserve Bank of New Zealand is expected to keep their official cash rate on hold at 1.75%. Governor Wheeler faces a tough task keeping the housing market under control while trying to accommodate economic growth. In Auckland alone house prices have soared by over 80 percent in five years thanks to record migration and low interest rates. Growth in recent years has been driven by the post-earthquake rebuild in Christchurch and the economy relies very heavily on the dairy sector.

As the rebuild begins to wind down and dairy prices remain under pressure it would make sense for the bank to cut the cash rate, however the risk of a housing market bubble restricts their ability to do this. As such the Reserve bank is stuck between a rock and hard place and likely to keep rates on hold for some time. 

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