‘Back Boris or else’ – Tories warned
UK consumer lending rose to £5.5bn in July, beating the forecast of £4.6nm and mortgage lending also outperformed which reduced some of the pessimism in the consumer spending outlook. An attempt to secure an emergency injunction blocking the prorogation of Parliament was denied in a Scottish Court, but there will be further hearings this week.
Sterling failed to hold above the 1.2200 mark against a strong Dollar, although the Euro dropped to near 1.1085. Futures data showed only a small decline in short bets against the Pound with the overall number of contracts close to 2-year highs, maintaining the scope for sharp reversal if sentiment improves.
Political tensions reached boiling point over the weekend on reports that Conservative MPs would be sanctioned if they don’t support the government, including deselection.The Pound opens near 1.2170 on the Dollar and 1.1075 on the Euro. Volatility is inevitable this week and the House of Commons returns from recess on Tuesday.
US data releases had little impact on bond markets and losses in US Treasuries faded which curbed potential dollar support while equity markets were little changed. The US core PCE index increased 0.2% for July, below consensus forecasts of 0.3%, although the year-on-year rate met expectations at 1.6% and was unchanged from the previous month. The Chicago PMI index returned to expansion territory at 50.4 for August from 44.4. Markets remained convinced that there would be a further 0.25% Fed rate cut this month.
President Trump strongly criticised the Federal Reserve (Fed) policy again while also complaining that the Euro slide was undermining US competitiveness. Administration and Fed rhetoric will be watched closely with Chair Powell due to speak on Friday.
Euro-zone CPI inflation held at 1.0% in August which was in line with forecasts, while the core rate was unchanged at 0.9% and below consensus forecasts of 1.0%. Hawkish ECB members continued to push back against the need for aggressive monetary easing, although there was little impact with markets already pricing in the expectation of an aggressive September package.
The Euro failed to gain any traction from relief from Italian politics even though the Democrats (PD) and 5-Star reached agreement on a new government. The far-right AfD party also made net gains in two German State Elections, but there was some market relief as the performance was slightly below expectations. An overall dip below key 1.1000 level triggered fresh selling and is pushing the Euro further down against the Dollar to 2-year lows near the 1.0950 mark.
Data to watch
09.00 GBP – Manufacturing PMI