Slightly better than expected wages and jobs data saved Britain’s pound from another downward lurch on Wednesday, offsetting a series of political and economic warning signs as talks on leaving the European Union get going. Amid the resulting falls in the pound, several of the Bank of England’s monetary policy panel members have stepped in to warn that they may raise rates soon, temporarily lifting the currency before it slipped back. Before the referendum last June, many economists produced gloomy forecasts which have since been proved wrong. Consumers’ confidence has not suffered, things have gone on as before.
However, the UK has not actually left the EU yet – the real change may only happen once it does. The current uncertainty, ahead of talks between the UK and the rest of the EU, over what form Brexit will take is an issue for many firms when it comes to investment planning.
The UK economy grew by more than previously reported in the final three months of 2016, according to the latest official estimate. Gross domestic product (GDP) increased by 0.7%, up from 0.6%, according to the Office for National Statistics (ONS). The upward revision is mainly due to the manufacturing industry having done better than thought. The ONS cut its estimate for growth in 2016 as a whole to 1.8%, down from the 2% it forecast last month.
There are hints that Brexit uncertainty is hitting business confidence. The ONS also said there had been a slowdown in business investment, which fell by 1% compared with the three months to the end of September. The UK’s Office for Budget Responsibility (OBR) recently revised up its growth forecast for this year from 1.4% to 2%. Which is then expected to slow to 1.6% next year.
The pound and Shares
The Pound fell dramatically after the Brexit vote last year, and since then has been trading around 15% lower compared to the dollar and 12% lower compared to the euro than it was before the referendum. The fall in the pound has helped exporters but it has made foreign holidays more expensive for British tourists.
It has also increased import costs for manufacturers.
Currency strategists say that sterling is likely to remain volatile in the coming months until there is greater clarity about the UK’s Brexit deal.
The pound may have weakened but investor confidence as measured by UK share prices is holding up well – UK stockmarkets have risen since last summer.
Many forecasts of immediate economic gloom if the UK voted to leave the EU were proved wrong. They did not take into account possible compensatory action by the Bank of England in the wake of a Brexit vote. After the referendum the Bank of England took steps to boost the economy. In particular it cut interest rates from 0.5% to 0.25% in August – the first reduction in the cost of borrowing since 2009 – taking UK rates to a new record low.
Rates are unlikely to go up any time soon, however, at the most recent meeting of the Bank’s interest rate-setting committee, one member of the Monetary Policy Committee did vote for a rate rise.
UK house prices accelerated in February rising by 4.5% in a year, according to the Nationwide, and by 5.1%, according to the Halifax. Although housing demand is being supported by an economy that continues to perform well with employment still expanding as well. There are predictions for a 2% rise in UK housing.
Net migration to the UK dropped to 273,000 in the year to September 2016, down 49,000 from the previous year.
The Office for National Statistics said it was the first time in two years the balance of people arriving and leaving the UK had dipped below 300,000.
Published in February, this is the first data to include migration estimates following the EU referendum.
Immigration was estimated to be 596,000; of these 268,000 were EU citizens, 257,000 non-EU citizens and 71,000 were British citizens.
Some 323,000 people are thought to have left the UK in the same period, up by 26,000 on the previous year.
Of these, 103,000 were EU citizens, 93,000 non-EU citizens and 128,000 British citizens.
The UK has long been running a trade deficit, meaning that overall it imports more than it exports, and both imports and exports have been boosted by the weaker pound.
House building has slowed to a six-month low as costs have soared, due largely to a weaker pound.
The unemployment rate has been falling steadily over the last five years, as the UK recovered from the global financial crisis, which saw up to two million jobs lost.
Wages have been growing faster than inflation in recent months, though the gap is narrowing, leading to warnings of squeezed incomes.
In the three months to January, regular pay increased by 2.3%, compared with the same period a year earlier. That was sharply lower than the 2.6% seen in the three months to December.
Meanwhile, inflation currently stands at 1.8%, up from 1.6% a month ago.
Real income growth is now running at 0.6%.
“If the incomes squeeze translates into falling consumer confidence, then the main driver of the better-than-expected economic news since the referendum could turn bad.
Overall, the bias in prices is: Upwards.
Short term: Prices are stalling.
Intermediate term: Prices are ranging.
The projected upper bound is: 1.33.
The projected lower bound is: 1.29.
The projected closing price is: 1.31.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 75.6588. This is not an overbought or oversold reading. The last signal was a buy 2 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.30. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 54 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 173.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 8 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 0 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed up 0.016 at 1.309. Volume was 12% below average (neutral) and Bollinger Bands were 21% wider than normal.
Open High Low Close Volume
1.293 1.311 1.293 1.309 112,487
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1.29 1.29 1.26
Volatility: 10 9 11
Volume: 112,652 126,663 140,286
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 4.3% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on GBP= and have had this outlook for the last 10 periods. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.