This week's edition covers the UK trade data publication and revisions, the latest oil production deal, UK data on production and the decision by the European Central Bank on Quantitative Easing.
UK TRADE DATA REPUBLISHED
The Pound was provided as the reason for the fall in the UK’s trade deficit in goods and services of £3.8bn in October, according to data from the Office for National Statistics (ONS). The goods deficit was an embarrassing revision from three days earlier for Q3 2016 that estimated a £9.7bn shortfall in October 2016, after exports rose by £2 billion and imports decreased by £1.8 billion from the previous month. The new ONS data showed trade deteriorated by £4.3bn, rather than improve by the £1.7bn number first published.
OIL PRICES INCREASE
Oil prices rose higher on the back of news that countries that produce oil, but who are not part of the Organization of the Petroleum Exporting Countries (OPEC), will also cut production. It is the first global deal for 15 years and follows last week’s deal among OPEC members, which saw production cut by 1.2mn barrels a day and a price increase of 15%. Now non-OPEC members have agreed to cut production by a further 550,000 barrels a day. However, this only means a cut of 1.7mn barrels from a daily production level of 33mn barrels a day for OPEC alone who are estimated to produce just 40% of all oil. Many therefore are sceptical that these announcements will have a long term impact on pricing.
UK PRODUCTION SHRINKS
October 2016 saw total production estimated to have decreased by 1.3% compared with September 2016 according to the ONS. Mining and quarrying had the largest downward pressure. Meanwhile, manufacturing decreased by 0.9%, following an increase of 0.6% in September. The decreases were also broad-based across the sector, with the largest downward pressure coming from pharmaceuticals, which fell by 3.6%.
EUROPEAN CENTRAL BANK SURPRISES
The European Central Bank (ECB) is extending its Quantitative Easing (QE) programme until at least December 2017 instead of the six months’ consensus view. Meanwhile, it cut its purchases by €20bn a month. While the cut in support was seen as a step-back from QE, to put it into context, this easily surpasses (in equivalent terms) as an example the combined GDPs of Greece and Portugal. The bank also kept its key interest rate unchanged at zero (as expected). The bank cited that its extension was down to future uncertainty, having highlighted political risk late last month as one of the main issues for concern.
While Trump’s Twitter tantrums continue to dominate news headlines, the markets remain focused on the potential upside to US businesses that his policies could provide.
As a result, the Russell 2000 mid-cap index continues to increase in value. The index was up a further 3.64% last week and is up 10% overall since it was added to 7IM’s portfolios. Meanwhile the US Financial position also added post the Trump triumph held up.
However, while markets continue to surprise on the upside, some are more cautious and believe the current euphoria could end as investors think more about the impact on profits that a rising US Dollar and increasing interest rates would have.
THREE ANNOUNCEMENTS DUE THIS WEEK
14 December – UK Unemployment Rate // 14 December – US Retail Sales // 15 December – EU Purchasing Manager Index
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SOURCES: BLOOMBERG; 7IM