2nd October 2017 Market Update
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?? GBP – The pound traded in a fairly narrow range against the euro last week and, against the dollar, found support after losses early in the week. Bank of England Governor Mark Carney and Theresa May both spoke at the BoE’s conference celebrating 20 years of independence. Carney seemed to lecture the PM on her plans for Brexit, telling her that they would lead to weaker income growth and the central bank could do nothing to mitigate this.
There is very little in the way of data releases this week for the UK, with only manufacturing, construction and services figures due today, tomorrow and on Wednesday respectively. With a small decline expected in the manufacturing and construction figures, we could see Sterling struggle. FPC Statement to be released on Tuesday, giving an assessment of potential risks to the UK’s financial stability, including Brexit’s risk.
?? EUR – The euro felt pressure last week with little data released and political uncertainty putting pressure on the single currency. German Chancellor Merkel won only a third of overall votes which means that she has to seek a three-party coalition in order to form a German Government, which may now not happen until next year. Inflation missed its target on Friday, but there was little effect on the currency.
Manufacturing data and the unemployment rate will be watched closely as unemployment is expected to show a small improvement in the eurozone and could help support the euro this morning. The ECB will have its non-monetary policy meeting this Wednesday and release their accounts the following day. Retail sales could also help buoy the single currency as a positive reading is expected on Wednesday.
?? USD – The dollar made gains early last week following comments from FOMC member Dudley, which gave hope for an interest hike soon as he claimed inflation weakness is fading in the US.
Though a day later, Fed Chair Janet Yellen admitted that the Fed may have overstated the strength of the US job market and the rate of inflation. Thus the unwinding of stimulus may occur at a slower pace than previously expected.
The week ended with better than expected growth figures but core PCE, which is one of the main inflation indicators, failed to hit expectations resulting in little movement in the dollar.
This week will be full of releases from the US and this will likely provide direction for the other major currencies as the week progresses. This afternoon, manufacturing data will be the main release focus and the first of seven speeches from Fed members this week. As with all Fed speeches, markets will be looking for any talk of when the Fed will next have an interest rate hike, with markets currently factoring a 60% chance of a December hike.
09:30am – Manufacturing PMI expected at 56.4 from previous 56.9
09:30am – FPC Statement, Construction PMI expected at 50.8 from 51.1 previously
09:30am – Services PMI expected to remain at 53.2
09:00am – Manufacturing PMI expected to remain at 58.2
10:00am – Unemployment Rate for August expected at 9% from previous 9.1%
08:00am – ECB Non-monetary policy meeting
09:00am – Services PMI for September expected to remain at 55.6
11:00am – Retail Sales for August, MoM expected at 0.3% from -0.3%
15:00pm – Manufacturing PMI Expected at 58.0 from previous 58.8
19:00pm – Fed Kaplan Speech
13:15pm – ADP Employment change expected at 135k from previous 237k
14:45pm – Services PMI
15:00pm – Non-manufacturing PMI expected at 55.4 from 55.3
20:15pm – Fed’s Yellen Speech
15:00pm – Factory Orders for August expected at 1% from -3.3% previously
13:30pm – Nonfarm Payrolls expected at 98k from 156k previously, unemployment rate for September to remain at 4.4%
Our View: This week will be largely about the US dollar, with a plethora of data being released, markets will be keen to see positive readings help support the Fed with a potential rate hike in December, though we have had disappointing results recently such as last month non-farm payrolls and any repeat could see the dollar pressured. The pound may come under some pressure early in the week as manufacturing and construction figures are expected to slide, though the losses may be limited as services data on Wednesday should support the pound.
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