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Moves to safe havens as growth concerns spread.

By Hamish Muress

So there is life beyond Brexit apparently and markets were reminded of that yesterday with the latest release of UK employment figures. The number of people in employment rose once again whilst the employment rate itself hit 75.8%, the highest level since records began. Importantly as well, with so little slack in the employment market its also crucial to look at wage growth figures which also beat expectations rising to 3.4%, the highest level since 2008. With real wages continuing to outstrip inflation the pound felt buoyed yesterday.

The market however is still solely interested in Brexit proceedings with reports that a hard looking Brexit is being entirely discounted however this seems premature still.

The government shutdown has now entered its 33rd day with little end in sight and limited economic data being produced. The ‘risk off’ environment is now beginning to gather momentum with the S&P 500 closing in the red for the first time since the shutdown began a month ago. Safe haven yields in Europe and the US were down as well yesterday whilst the Japanese Yen made a run for USD/JPY 109 whilst the USD was stronger against the majority of other currencies.

If there’s any data that the market thinks reflects the state of the German economy it is the ZEW. However, the assessment of the current economic situation sunk to a four year low reflecting the current Brexit impasse, US/China trade war and global headwinds. However, to a slight surprise sentiment moving forward picked up against expectations. Mario Draghi meets his colleagues tomorrow where the ECB is expected to downgrade forecasts for growth. Investors will be reading between the lines tomorrow when Draghi speaks at his press conference although surprises might be few and far between with the ECB President having spoken as recently as last week to the European Parliament. If Draghi is particularly dovish then EUR/USD could drop through the 1.13 level for the first real time since November.

The IMF chimed in recently regarding global growth forecasts for 2019 downgrading their expectations to 3.5%. Christine Lagard, MD of the fund, said that US-China trade wars, Brexit and the slowdown in China is hurting growth prospects. It is this focus on China which is a cause for concern for the Australian dollar. We wrote recently how the Chinese economy shrunk to a ‘modest’ 6.4% in Q4 2018 on an annualised basis. Over the last 6 days or so the Aussie has slipped around 1% against its American counterpart as the slowdown continues.

The slump seen in the oil price and weaker global growth is now taking its hold on manufacturing sales which came in weaker than expected for November. The moves then seen in USD/CAD were the steepest since the start of the year as the Loonie suffered this further setback and now USD/CAD seems to hold 1.33.

New Zealand inflation picked up at the back end of last year beating expectations coming in almost exactly on point and at target at 1.9%. The Reserve Bank of New Zealand were the first central bank to formally adopt inflation targeting as we know and today’s release of numbers has seen the Kiwi push on against a number of its counterparts, in particular the USD.