Global Themes

NZD

Mayday mayday - Brexit vote aborted

Pound plummets as PM May delays UK parliament vote on Brexit bill.

NZD/GBP hit fresh 15 month highs as British Prime Minister Theresa May delayed a scheduled vote tonight in the UK parliament on the proposed Brexit withdrawal agreement. The Northern Irish border remains a massive hurdle for the PM, and her move to pull the vote confirms the suspicions that she doesn’t have the numbers to pass it. Soft UK GDP numbers also did little to help Sterling, with growth in the three months to October down to a meagre 0.4%, and both industrial production and construction shrunk significantly during that month, suggesting the uncertainty around Brexit is finally hitting home.

The developments are likely to push back any Bank of England rate hikes even further, and we maintain the position that fresh UK elections in the new year remain a very real possibility. For now NZD/GBP hovers in the mid 0.54s, its best level since August 2017.

US inflation looms

Beware market expectation around the Fed

US inflation numbers are due Wednesday night and could provide the final clue as to whether the Fed hikes rates early in December 20. Expectations are relatively benign, with headline CPI expected to fall from 2.5% in October to 2.2% on an annualised basis in November. Falling fuel prices during last month are seen as a major factor contributing to the slide.

Goldman Sachs revised down their expectations around future Fed hikes yesterday, but they are still seeing a 90% chance of a December hike, which is far greater than the 72% chance the market ascribes. All this makes Wednesday night’s inflation print even more sensitive for markets. A soft number can get us an Advent rally towards 0.70, but we are still wary that a December Fed rate hike coupled with our own GDP might give us a bit of a hangover into the new year.

House price data due in Australia

US producer prices tonight

Falling house prices have been a concern for the Australian economy lately, and are one of the many reasons we find ourselves at 18 month highs on NZD/AUD today. The latest quarterly house price data coupled with the monthly NAB business confidence numbers will be closely watched across the ditch when released at 1:30pm today.

Tonight, US producer prices will give us a small taste of input pressures prior to the all important consumer price inflation number due the following night.

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