Previous Day's Market Highlights
Sterling tumbled on Friday as previously hawkish Bank of England policymaker Michael Saunders turned dovish, indicating that rate cuts are “plausible”, even in the event of an orderly Brexit. Saunders indicated that, should elevated levels of uncertainty persist, economic growth would continue to be depressed, and remain below potential for an elongated period of time, thus warranting a more expansionary stance of monetary policy. This significantly changes the market’s assessment of BoE policy, with most observers, including myself, previously thinking that policy loosening would only be enacted in the event of a disorderly, no-deal Brexit. Furthermore, with the aforementioned remarks coming from, typically the most-hawkish MPC member, the BoE seem to be edging closer to joining the global cycle of loosening policy in an attempt to prop up the UK economy. Not only does the pound now have to contend with ongoing Brexit uncertainties and a slowing economy, but also the prospect of lower interest rates; a rather unattractive mix. These factors combined to exert downward pressure on Friday, with sterling shedding 0.4% against the dollar, and 0.5% against the euro, briefly touching a 2-week low against both.
Meanwhile, the dollar settled unchanged, paring an early advance as trade concerns took the shine off a host of better than expected data releases. Market participants were spooked late in the Friday session by reports that the US were considering a move to limit investment in China by restricting portfolio flows, a move that would certainly increase tensions between the two superpowers. Prior to the concerning headlines, data showed durable goods orders, a useful leading indicator for production, unexpectedly increasing by 0.2% last month; while August’s core PCE price index, the Fed’s preferred inflation gauge, increased by 1.8% YoY, the fastest pace since January. This print gives policymakers a conundrum, with the FOMC having to determine whether to deliver additional ‘insurance’ rate cuts with inflation beginning to heat up. September’s final consumer sentiment index from the University of Michigan also surprised to the upside, reading 93.2, though the index remains below the 3-month average.
Elsewhere, the euro trod water, failing to significantly rebound after hitting a fresh 28-month low early on Friday morning. Markets largely ignored a host of sentiment surveys, despite the data showing the business climate indicator falling to a 7-year low. Other majors were also relatively subdued, with the Canadian and Australian dollars ticking up by 0.2%, while the kiwi dollar settled unchanged. The Japanese yen was also flat, while the Swiss franc gained 0.3%, benefitting from safe-haven flows.
Away from FX, European equity markets recorded solid gains, with trading closing before the negative trade headlines crossed news wires. The pan-continental Stoxx 600 closed 0.5% higher, though still slid to a weekly loss, snapping a 5-week winning streak. In contrast, US markets were pressured by the aforementioned trade headlines, with the benchmark S&P 500 slipping 0.53%, recording back-to-back weekly declines. Finally, oil prices declined after reports that the US had considered lifting sanctions on Iran. Global benchmark Brent settled 1.4% lower, while US WTI crude shed 0.9%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A new trading week begins with a relatively busy economic calendar, while geopolitical developments will remain front and centre. From the UK, today’s data highlight will be final second quarter GDP figures, expected to show growth unrevised at 1.2% YoY, and -0.2% QoQ. While the quarterly contraction is concerning, the market impact is likely to be muted, barring any significant revisions, while the economy is expected to have modestly expanded in Q3, thus avoiding dipping into a technical recession. Of particular interest in the GDP report will be the business investment data, which is likely to remain subdued due to ongoing Brexit-linked uncertainties. Meanwhile, market participants will continue to focus on any Brexit headlines, with rumours persisting that opposition parties may attempt a vote of no confidence this week, with the aim of installing a temporary Prime Minister who would avoid a no-deal exit by requesting an Article 50 extension, before calling a winter general election. Whether such a plan would succeed remains doubtful, with opposition MPs appearing unlikely to coalesce behind a single, ‘unity’ candidate at this stage. Focus will also be on this week’s Conservative Party conference, with PM Johnson set to give the closing address on Wednesday morning.
Turning back to Monday’s releases, market participants will be focused on the usual end-of-month reports, including the Swiss economic barometer, eurozone unemployment figures and PMI figures for the Chicago region; the latter being broadly representative of the US economy as a whole. Overnight, attention will shift to Australia, with the RBA set to announce their 3rd 25bps cut this year, bringing rates to a fresh record low of 0.75%. Further policy accommodation is likely due to a continued sluggish pace of growth, subdued inflation, a slack labour market, and increasing downside risks to the economy. With a cut roughly 85% priced in, the AUD’s reaction will depend largely on the policy outlook, with a dovish stance likely to result in downside moves.
Looking ahead to the remainder of the week, October will begin with the usual round of PMI surveys, expected to show a continued slowdown in the manufacturing sector, as well as possible spill-over effects into the services industry. Meanwhile, focus will also fall on September’s CPI figures from the eurozone, a host of Federal Reserve speakers, as well as Friday’s US labour market report.
Today's Economic Calendar
|9.30am||GBP||Final GDP (QoQ - Q2)||-0.2%||-0.2%|
|9.30am||GBP||Final GDP (YoY - Q2)||1.2%||1.2%|
|10.00am||EUR||Unemployment Rate (Aug)||7.5%||7.5%|
|14.45pm||USD||Chicago PMI (Sep)||50.5||50.5|
|00.30am (Tues)||JPY||Unemployment Rate (Aug)||2.3%||2.2%|
|5.30am (Tues)||AUD||RBA Interest Rate Decision||0.75%||1.00%|