Upping the Ante

Sterling stumbles as Boris announces the suspension of Parliament ahead of a key day of US releases.

Previous Day's Market Highlights

PM Johnson sparked constitutional outrage on Wednesday after announcing that Parliament would be prorogued (suspended), upping the ante on Brexit and somewhat increasing the likelihood of a no-deal exit. The government announced that Parliament would be suspended for almost 5 weeks from mid-September, officially to allow a Queen’s Speech to take place and allow the Government to set out their ‘very exciting agenda’. However, it is relatively easy to tell that the move is a clear sign of Johnson trying to out-manoeuvre MPs opposing a no-deal exit, restricting the time available to pass legislation tying the government’s hands. With legislative attempts to block a no-deal exit subject to such tight time constraints, a vote of no confidence in the government may be the only way to prevent such an outcome. This gives rebel Conservative MPs a dilemma; having to choose whether or not to vote down their own government which is still officially aiming to negotiate a deal with the EU. With these constraints seemingly increasing the chances of a no-deal exit, the pound sold-off. Sterling traded around 1% lower across the board after the news of the suspension broke, however recovered some ground throughout the day. The pound closed 0.5% lower against the dollar, and 0.4% lower against the euro. Looking ahead, while the outlook remains uncertain, the ongoing Parliamentary manoeuvring and political melodrama pose significant downside risks to sterling.
 
Elsewhere, excitement and volatility was largely confined to the pound, with other G10s remaining relatively rangebound amid a lack of major data releases. The dollar was Wednesday’s best performer, adding around 0.2% against a basket of peers, as the greenback shrugged off the yield curve heading deeper into inversion and yet another attack on the Fed from President Trump. Meanwhile, the euro closed unchanged, paring earlier losses after the announcement of a fresh coalition in Italy, with Giuseppe Conte remaining as Prime Minister, preventing the need for fresh elections. Commodity currencies were similarly quiet, as both the Aussie and Canadian dollars closed unchanged from their opening levels. The Kiwi dollar lagged behind however, dipping 0.3%, touching its lowest levels in almost 4 years against the greenback.
 
Away from FX, European equity markets were dragged down by a struggling insurance sector, with the pan-continental Stoxx 600 closing 0.3% lower. Across the pond, US markets gained ground despite investors remaining nervous about US-China trade tensions. The benchmark S&P 500 closed more than 0.5% higher. Finally, oil prices firmed after data showed a larger than expected stockpile draw. Both Brent and WTI settled more than 1.5% higher.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1015 1.1091 1.0724 3.31%
GBP/USD 1.2205 1.2310 1.2015 2.40%
EUR/USD 1.1090 1.1250 1.1051 1.77%
GBP/AUD 1.8160 1.8336 1.7690 3.52%
GBP/NZD 1.9335 1.9413 1.8547 4.46%
GBP/CAD 1.6250 1.6357 1.5865 3.01%

Today's Market Highlights

A number of US data releases will be in focus today, chiefly the 2nd estimate of Q2 GDP. While the accuracy of the data improves with each revision, the market impact becomes less significant - barring any significant revisions. Expectations are for the US economy to have grown at 2.0% on an annualised QoQ basis, broadly in line with the ‘advance’ figure released a month ago. While the headline figure will attract the most attention, market participants will dig into the details of the report, likely paying particular attention to consumer spending and business investment. Personal consumption is set to have increased at 4.3%, a very healthy pace, while business investment is likely to be unrevised, once again showing a decline in Q2. This exemplifies how the US consumer saved the day when it comes to growth in the second quarter; with this theme likely to continue in the remaining months of the year as ongoing global risks continue to stunt business investment. Also in focus today will be weekly jobless claims, expected broadly in line with the 4-week average of 214k, along with July’s pending home sales data.
 
Elsewhere, the data calendar is busy with several eurozone releases. This morning’s economic sentiment survey should show continued pessimism, particularly when it comes to consumers, with consumer confidence set to remain rooted in ‘glass half empty’ territory. Also of concern is the likely subdued level of business confidence, emphasising the weak economic momentum across the bloc and solidifying the case for additional ECB stimulus next month. Markets will also focus on a couple of releases from Germany, with August’s labour market report set to show the jobs market remaining tight. Meanwhile, August’s HICP inflation figures will likely continue to show a benign pace of price increases, with HICP expected at just 1.2% YoY. In the UK, focus will remain on political developments, with no economic releases due.
 
Overnight, a number of Japanese data releases will be eyed as August draws to a close. A slew of data including CPI, industrial production, retail sales and unemployment figures are all due in the early hours, resulting in potential volatility for the yen. Of the releases, industrial production will be closely eyed as the global manufacturing sector continues to slow, while CPI should show the pace of price increases remaining subdued and labour market data should show Japan remaining at practically full employment.

Today's Economic Calendar

Time Currency Release Consensus Previous
8:55am EUR Germany Unemployment Rate (Aug) 5.0% 5.0%
10:00am EUR Final Consumer Confidence (Aug) -7.1 -7.1
1:00pm EUR Germany HICP (Prelim. - YoY Aug) 1.2% 1.1%
1:30pm USD US GDP (Annualised QoQ - Q2 2nd Est.) 2.0% 2.1%
3:00pm USD Pending Home Sales (MoM Jul) 0.0% 2.8%