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Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as German Industrial Production Stumbles

The Pound Sterling Euro (GBP/EUR) exchange rate remained largely flat on Friday, giving up some previous losses. The pairing is currently trading at around €1.1830.

The single currency remained under pressure as data revealed the slump in German factory output could drag on the wider economy.Industrial production in the bloc’s largest economy disappointed at the start of the fourth quarter. Month-on-month, production plummeted by -1.7% after September’s fall of -0.6%.

‘Today’s data suggests that the German economy is continuing to flirt with stagnation and contraction in the final quarter of the year.

‘Looking ahead, both soft and hard indicators bode ill for industrial activity in the months ahead […] Trade conflicts, global uncertainty and disruption in the automotive industry have put the entire German industry in a headlock, from which it is hard to escape.’

Sterling (GBP) Edges Lower After Three-Day Rally

On Friday, after a three-day rally, the Pound edged lower against a handful of currencies.

While the currency edged lower at the end of the week, GBP was still headed for its best week since mid-October.

The Pound Euro (GBP/EUR) exchange rate hit a two-and-a-half year high on Thursday as Brexit optimism sparked a rally.

This week opinion polls have revealed support for the Conservatives has grown, increasing the likelihood the party will win an outright majority in next week’s election.

If Boris Johnson’s party secures a majority it will allow the PM to take the UK out of the EU by the January deadline.

‘It’s a small move and no fundamental change [in terms of what opinion polls show].

‘From a risk-reward perspective most people are too optimistic but if you look at option markets you can see some people positioning for Sterling weakness.’

Markets remained optimistic that a Tory win would see more than three years of Brexit uncertainty come to an end.

However, even if the Conservatives win a majority, some analysts have argued that any further GBP gains will be limited.

Pound Euro Outlook: Will Election Optimism Buoy GBP?

Looking ahead to next week, the Pound (GBP) could edge higher against the Euro (EUR) if there are further polls suggesting the Conservatives will win Thursday’s election.

If markets continue to remain optimistic that Boris Johnson will secure a majority, Sterling sentiment will increase.

Meanwhile, the single currency could slide if Germany’s trade balance disappoints, and October’s exports slump.

If both imports and exports fall in October, the Pound Euro (GBP/EUR) exchanger rate could edge higher.

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 Prices of the safe-haven gold fell on Friday in Asia as traders continued to monitor Sino-U.S. trade news.

The U.S. Gold Futures fell 0.4% to $1,477.45 by 1:42 AM ET (05:42 GMT).

On Thursday, U.S. President Donald Trump said trade talks were "moving right along", pushing global equities higher.

Uncertainties over a deal remained, as the president’s comments this week sent mixed signals regarding the trade talk progress.

Trump said overnight that negotiations with China are going "very well” overnight, just one day after he dented hopes for a trade deal by saying that an agreement to end the trade dispute may have to be delayed until after the American presidential election in November 2020.

Meanwhile, U.S. Treasury Secretary Steven Mnuchin told reporters that negotiations between Washington and Beijing were progressing, without a deadline for conclusion.

On the data front, the latest U.S. job report due later in the day is expected to generate some attention.

Gold traders are also awaiting the upcoming U.S. Federal Reserve meeting...

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The U.S. dollar was unchanged on Friday in Asia as traders awaited the release of the latest U.S. job report, which is due at 8:30 AM ET (13:30 GMT).

The U.S. dollar index that tracks the greenback against a basket of other currencies was unchanged at 97.380 by 1:30 AM ET (05:30 GMT).

Analysts tracked by Investing.com expect the job report to show the economy added 186,000 jobs in November, up from 128,000 jobs in October and 155,00 jobs in November 2018. The unemployment rate is projected to hold steady at 3.6%, unchanged from October and down slightly from December 2018.

Traders also kept an eye out for the latest development on the Sino-U.S. trade front as U.S. President Donald Trump said "something could happen" on whether the Washington will impose new tariffs on Chinese goods starting Dec. 15.

Trump said on Thursday that negotiations with China are going "very well," just one day after he said an agreement to end the trade dispute may have to be delayed until after the American presidential election in November 2020.

The USD/CNY pair traded 0.1% lower to 7.0417.

The EUR/USD pair was little changed at 1.1102 as data on Thursday showed that German factory orders unexpectedly declined in October.

The GBP/USD pair was also near flat at 1.3156. Reports this week suggested that U.K. Prime Minister Boris Johnson could win a majority at next week's election, paving the way for Britain to leave the European Union on Jan. 31.

The USD/JPY pair slipped 0.1% to 108.68.

Meanwhile, the AUD/USD pair and the NZD/USD pair both gained 0.2%.

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State-run trading company MMTC is importing onions to check spiralling prices and the shipment is expected to arrive by January 20, Union Minister Danve Raosaheb Dadarao said in Rajya Sabha on Friday.

Delayed and prolonged rains are the main reason for damage to onion crops, Minister of State for Consumer Affairs, Food and Public Distribution, Dadarao said during Question Hour.

He said the government used buffer stock to meet the crisis.

"Onion prices are rising ... there can be no two opinions. Late rains and prolonged rains damaged onion crop...But government had buffer stock, it was distributed from that. MMTC is importing from various countries and it is expected by January 20," the Minister said replying to a supplementary.

On Thursday, onion prices which have been fluctuating for over a month in Delhi, touched Rs 109 per kg in many markets in the city.

About edible oil, the minister said its domestic production is not adequate to meet demand in the country and gap between demand and production is met through imports.

"The production of soyabean in Maharashtra for 2019-20 is expected to be 42.08 lakh tonne as compared to 45.48 Lakh tonne in 2018-19. However, the expected production of 42.08 LT of soyabean in 2019-20, in Maharashtra, is more than the last five year average production of 34.77 LMT," the minister said.

In case of any decline in the domestic production, the gap between demand and availability is met through import of edible oils, he said.

He said while government has taken various steps to enhance edible oil production, 60 per cent of its requirement is met through imports while only 40 per cent was met through domestic production.

He said its minimum support price has been increased.

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India's services sector activity returned to growth after two months of decline in November, driven by new business orders, faster job creation and strengthening business confidence, a monthly survey showed on Wednesday but noted that there were signs of "fragility".

The IHS Markit India Services Business Activity Index improved to 52.7 in November from 49.2 in October.

Notwithstanding the upturn, the headline figure remained below its long-run average of 54.2, the survey added.

"Although the services economy shrugged off some of the weakness seen in September and October, the latest PMI results continue to sound a note of caution regarding demand and the underlying state of the sector," said Pollyanna de Lima, Principal Economist at IHS Markit.

Lima further cautioned that "while the sector moved along nicely and looks set for a sustained expansion in December, there were signs of fragility".

"Rates of expansion in sales and activity were mild by historical standards, while the degree of business confidence remained subdued. Also, a moderation in charge inflation, which came despite the strongest upturn in cost burdens for over a year, highlights a lack of pricing power among services firms," Lima said.

On the prices front, the survey said that the average input prices increased solidly in November, with the rate of inflation quickening to a 13-month high. While, average prices charged for the provision of services in India increased only slightly and at the weakest pace since July.

"This relatively weak rise in charges likely supported demand in November, but leads to questions on how long firms can absorb cost increases and sacrifice margins in favour of demand growth," Lima said.

The Composite PMI Output Index that maps both the manufacturing and services sector, rose from 49.6 to 52.7, signalling a moderate pace of increase that was below the long-run survey average.

According to official data, India's GDP growth hit an over six-year low of 4.5 per cent in July-September 2019.

Bankers and experts believe the Reserve Bank may cut interest rates for the sixth straight time on December 5, to support growth that has continued to slip.

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The government on Tuesday assured the Rajya Sabha that merger of 10 public sector banks will not lead to any job losses and employees' interest will be protected.

In August, the government announced a mega plan to merge 10 public sector banks into four with a view to creating fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.

During the Question Hour, Minister of State for Finance Anurag Singh Thakur said lending and other banking services to eastern states will be improved after two Kolkata-based banks are merged.

While United Bank of India (UBI) will be merged with Punjab National Bank, Allahabad Bank will be amalgamated with Indian Bank. These two banks are headquartered in Kolkata.

"Merger of banks will strengthen the lending capacity. It has been ensured that no person loses job. The employees of merging banks will benefit the maximum. Merger is being done keeping their interest in mind," he said.

"We have taken enough precaution," he said, adding that Narasimham Committee in 1998 and Leeladhar Committee in 2008 recommended amalgamation of the banks.

"Amalgamating banks was advised to duly factor in and draw road maps for converging IT systems and HR and to put in place institutional arrangements to ensure expeditious integration," Thakur said.

After due consideration by their respective boards, the banks have informed that multi-level coordination and integration committees have been set up to ensure faster integration across functionalities, he added.

The minister was responding to a query from Trinamool Congress member Manish Gupta who said that about 50,000 employees will be jobless by next year due to the merger.

To another query on banking services likely to be affected in eastern states due to the merger, the minister said the reach and lending capacity will be "much larger and better" with the amalgamation.

"In today's time of competition, I think expansion of these banks is very important...It was our government which went for asset quality review of bank loans given between 2004 and 2014. We adopted an approach for better functioning of the banks and recapitalised them with over Rs 2.35 lakh crore for better strengthening and functioning," he said.

As far as lending to eastern states is concerned, the minister said, "Let me assure the member there would not be any shortage or shortfall of services."

Responding to another query from Trinamool Congress member Manas Ranjan Bhunia on reasons for merger of UBI with PNB, the minister said, "I think the overall intention was to create a strong and competitive bank that may serve as catalyst of growth with improved risk profile of the bank. As far as the interest of the employees are concerned, pay allowances were less favourable overall."

He said UBI's total business size is Rs 2,08,000 crore, whereas that of PNB is Rs 11,82,224 crore. With the merger, total business size will be Rs 17,94,526 crore, making it the second largest bank in the country.

"What we have kept in mind is the software 'Core Banking System' being used by them. All these banks which are using similar kind of software have been merged accordingly so that there would not be any difficulty for the employees," he said.

As far as the sentiment of eastern states or Kolkata is concerned, that will be taken care of, Thakur added.

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The country's manufacturing sector activity inched up in November, but the upturn remained subdued as growth rates for new orders as well as production were modest, a monthly survey said on Monday.

The IHS Markit India Manufacturing PMI rose to 51.2 in November from 50.6 in October, when it had fallen to a two-year low, indicating only a slight improvement in the health of the sector.

Although business conditions in the Indian manufacturing sector improved in November, the rise, however, remained subdued compared to earlier this year and the survey history, the study said.

This is the 28th consecutive month that the manufacturing PMI has remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"After pulling back noticeably in October, manufacturing sector growth displayed a welcoming acceleration in November. Still, rates of expansion in factory orders, production and exports remained far away from those recorded at the start of 2019, with subdued underlying demand largely blamed for this," said Pollyanna de Lima, Principal Economist at IHS Markit.

According to the survey, growth of manufacturing activity in November was supported by the launch of new products and better demand, though restrained by competitive pressures and unstable market conditions.

"Some level of uncertainty regarding the economy was evident by a subdued degree of business optimism. Also, companies shed jobs for the first time in over a year-and a-half and there was another round of reduction in input buying," Lima said.

Lima further noted that the weakness of these forward-looking indicators suggest that firms are bracing themselves for challenging times ahead.

On the inflation front, there were only marginal increases in both input costs and output charges in November.

"PMI data continued to show a lack of inflationary pressures in the sector which, combined with slow economic growth, suggests that the RBI will likely extend its accommodative policy stance and further reduce the benchmark interest rate during December," Lima said.

The Reserve Bank may cut interest rates for the sixth straight time on December 5 to support growth that has continued to slip to more than six-year low on slump in manufacturing, bankers and experts said.

The RBI has cut interest rates on every single occasion the monetary policy committee (MPC) has met since Shaktikanta Das took over as the Governor in last December.

In five reductions so far in 2019, interest rates have been lowered by a total of 135 basis points over concerns that growth momentum is slowing down and also to try to boost liquidity in the financial system.

GDP growth slowed sharply to a pace of 4.5 percent in the July-September, hit by a slump in manufacturing output. The pace of GDP growth has moderated from the 5 percent rate in April-June and 7 percent in July-September quarter of 2018.

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In line with expectations, economic expansion slowed further in Q2 FY20, with GDP and GVA growth declining to 4.5 percent and 4.3 percent, respectively in the quarter, down from 5 percent and 4.9 percent, respectively in Q1 FY20.

The dip in GDP growth in Q2 FY20 was unsurprisingly led by anemic investment activity, with gross fixed capital formation rising by 1 percent on a year-on-year basis.

Somewhat unexpectedly, private final consumption expenditure displayed a sequential uptick in growth to 5.1 percent in Q2 FY20, up from 3.1 percent in the previous quarter. This was at odds with the evidence provided by various sectors that consumer sentiment was muted in both rural as well as urban areas.

Moreover, the quarter post-elections saw a sharp improvement in the growth of government final consumption expenditure to 15.6 percent in Q2 FY20 from 8.8 percent seen in Q1 FY20.

In terms of the sectors of the GVA, the slowdown was driven by industry, even as the services and agriculture broadly maintained their growth momentum in Q2 FY20, as we had anticipated.

Industrial GVA growth recorded a broad-based deceleration to a marginal 0.5 percent in Q2 FY20 from 2.7 percent in the previous quarter. This was driven by the 1 percent contraction in manufacturing GVA in Q2 FY20, which reflects the subdued volume trends reported for a wide variety of sectors.

In our view, muted raw material costs cushioned earnings, and prevented manufacturing GVA from displaying an even deeper contraction in Q2 FY20.

The modest agricultural growth in Q2 FY20 was in line with our forecast, based on the mixed trend in the output of kharif crops revealed by the 1st Advance Estimates of crop production.

However, with the excessive rainfall in various parts of the country in August-October 2019, additional moisture could lead to crop yields being lower than the initial estimates, in our view.

A sharp expansion in Central and state government spending in Q2 FY20 supported the performance of public administration, defence, and other services, which boosted service sector growth in that quarter. Excluding this sub-sector, GVA growth slowed to a distressingly low 3.2 percent in Q2 FY20 from 4.5 percent in Q1 FY2020.

In October 2019, the Monetary Policy Committee had indicated that it would retain the stance of monetary policy as accommodative for as long as necessary to revive growth.

Following the slowdown in GDP growth in Q2 FY20, the contraction in the core sector output has deepened sequentially in October 2019.

Therefore, we anticipate that the Committee would reduce the repo rate by 25 bps in the December 2019 policy review to support economic growth, looking through the vegetable price-led uptick in the CPI inflation in October 2019.

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Former RBI governor C Rangarajan on Friday suggested that recapitalisation of banks should be done through by infusing cash rather than issuing Bonds, as he cautioned that Boards of public sector undertakings, including banks, should maintain "arms length" from the Government.

Rangarajan comments assume significance as Finance minister Nirmala Sitharaman, in August, announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation.

At the inaugural session of the seminar 'Non-Performing Assets (NPA) and its Resolution in Indian Banks' at ICFAI Foundation for Higher Education,he, however, said the centre has infused Rs two lakh crore as capital into various banks during the past three years and it would be difficult for any dispensation to pump in so much as capital in cash form.

"I also have a point that one of the answers to the problems faced by the banking system is to ensure that the capitalisation of the banks is done properly."

According to him, the mode of recapitalisation that is being done now is through the issue of bonds. "What the banks really gain is only the interest income through the bonds. This also needs a relook...I plead guilty because we initiated thisin the early 1990s. But that was a different situation.

The fiscal was undergoing a great deal of problems as part of the reforms (then). But should we continue with this system?" he said.

The economist said though the majority of the stakes in banks is owned by the government, it is necessary to ensure that the lenders run business in the national interest and it is not necessary for the government to interfere with commercial decisions of banks.

"The credit decisions must be left to the Boards (of directors of banks). There is a large literature on the relationship between the government not only banks but also other public sector units.

And the people talk about the arms length between the board and the government..There is still much that needs to be done in terms of appropriate mechanism for appointing the Boards, for appointing the chief executives of the banks," he said.

Later talking to reporters, he said though there is decline in the country's growth numbers the situation does not amount to "recession."

"There is a slowdown..there is no doubt about the fact that there is slowdown, but the slowdown is in growth rate," Rangarajan said.

Hoping that the growth may pick up next year onwards, the former Chairman of the Prime Minister's Economic Advisory Council said it would take another eight years for India to become USD five trillion economy as opposed to Prime Minister Narendra Modi's target of 2025, due to the muted growth now. "The growth may pick up next year. Growth may not be substantial, but it may pick up next year..it takes 2-3 years to get back the growth of higher than 7 per cent," he said.

Advising that bankers should neither be "lazy bankers" nor "hasty bankers", Rangarajan said recent history shows that the appraisal systems for credit and working capital should be improved.

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The Andhra Pradesh government is hoping to secure a 60 million USD loan from the World Bank to take up the Rejuvenating Watersheds for Agriculture Resilience through Innovative Development (REWARD) project in five parched districts of the state over the next six years.

The total cost of the project, which would be taken up in the four Rayalaseema districts of Anantapuramu, Chittoor, Kadapa and Kurnool besides Prakasam in south coastal AP, is expected to be around Rs 500 crore.

While the World Bank would fund 70 per cent of the project cost, the state and the central governments have to share the balance, a senior official of the Panchayat Raj Department said.

The REWARD project would be implemented in Karnataka and Odisha apart from AP, with the World Bank lending a sum of 178 million USD for the three states. The total project cost in the three states is estimated to be 350 million USD.

A team of World Bank officials, led by Task Team leader Priti Kumar and co-leader Grant Milne, held talks separately with state Panchayat Raj Minister P R C Reddy and Chief Secretary Nilam Sawhney and discussed the project modalities.

"The project is in a preliminary stage and the World Bank has agreed in principle to grant the loan. We hope to get about 60 million USD from the Bank," Panchayat Raj Commissioner M Girija Shankar told PTI after the meeting.

Efficient water management, soil fertility improvement, adoption of standard agricultural practices and enhancement of cultivation are some of the salient features of the proposed project. Protection of water resources in areas of scarcity and optimum utilisation of water using proper management techniques would be the key features of the project.

The project would be implemented on a convergence mode involving different departments and also the MGNREGP, official sources said.

The state government would form a consortium comprising the State Rural Development Agency, Agriculture Department, AP Space Applications Centre and the Acharya NG Ranga Agricultural University to oversee the project.