Ahead of yesterday evening’s FOMC Minutes, the most commonly watched US equity index – the Dow Jones Industrial Average – was trading up around 150 points. When fears of a more aggressive path for US rate rises were not confirmed by the Minutes, the index added another 100 points to a high of 25,250. By the close of business in New York, however, the market had fallen over 400 points to close down -166 and as we write this morning has shed another 100 points from that level. The USD hasn’t been aggressively bought on this latest sell-off in stocks but currency markets remain stressed and the GBP is struggling to hold on to a USD 1.39 ‘big figure’. Indeed, it is down against all the major currencies overnight and for the third time this week takes bottom spot so far on our one-day performance table.
In economic news, the UK unemployment rate ticked up to 4.4% in the three months to December, up from 4.3% (a four-decade low) and the number of people out of work rose by 46,000 to 1.47 million. But, the number of people in work also rose, by 88,000 during the quarter, to 32.147 million. The one-tenth rise in the unemployment rate was the first increase in two years but there was a 109,000 fall in the number of people classed as economically inactive, which helped lift the jobless rate. Only a couple of weeks ago, the Bank of England expectation was for an unemployment rate of 4.3%, a slight drop to “around 4.25%” up until Q3 and a further drop to 4.1% by the first quarter of 2021.
Ahead of a Cabinet ‘offsite’ meeting on Brexit at Chequers, details have been leaked of a so-called ‘position paper’ which the UK Government has shared with EU member states. The document appears to leave open the possibility of an open-ended transition. “The UK believes the period’s duration should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future relationship,” the draft paper said. “The UK agrees this points to a period of around two years, but wishes to discuss with the EU the assessment that supports its proposed end date”. According to the Financial Times, “The paper contradicts some key EU negotiating principles and raises the risk of failing to reach a transition deal before a March summit of EU leaders… As the fortunes of the GBP are just as closely linked to Brexit as to incoming economic data, the intra-day swings in the British Pound look set to continue for some time to come.