Brexit boost and Spanish schism
Sterling benefitted from a boost to positive sentiment with Brexit Minister David Davis discussing the Brexit negotiation progress in an upbeat tone, although there were still important underlying uncertainties. Even EU Chief Negotiator Michel Barnier commented that there had been some UK clarity on certain points, but that they were not there yet.
There was no economic data yesterday but there was a small improvement in consumer confidence for September. Sterling found support just below 1.3350 against the Dollar and rallied back above 1.3400 while the Euro was unable to hold below the 1.1360 level and retreated to the 1.1390 area.
Markets will be wary of position adjustment on the last working day of the month with Sterling tending to be vulnerable to some month-end selling and there will also be some caution ahead of important UK PMI data releases next week. Today’s revised GDP data is unlikely to have a significant impact and Bank of England governor Mark Carney is unlikely to make significant comments.
The Dollar rally from earlier this week stalled yesterday. Core yields initially went higher but it didn’t support more USD gains. Markets apparently need more details on the Trump tax plan to assess its impact on growth.
The final US second-quarter GDP reading was revised up to 3.1% from the previous estimate of 3.0% while jobless claims increased to 272,000 in the latest week from 259,000 as hurricanes Harvey and Irma continued to have an impact on the data. There was also a slightly lower-than-expected goods trade deficit for August and an increase in wholesale inventories which triggered a small upgrading of third-quarter GDP estimates, although there was little overall market impact.
Kansas City Fed President George reiterated that it was appropriate to continue gradual interest rate increases. Relatively narrow ranges prevailed with the Euro testing the 1.1800 area before drifting weaker.
The US docket is quite busy today, with August’s inflation figures tracked by the PCE next on tap, seconded by personal income/spending and the final print of the consumer sentiment for the month of September. In addition, Philly Fed P.Harker is due to speak.
The Eurozone economic sentiment index showed a firm reading yesterday, posting a 10-year high of 113.0 for September from 111.9, maintaining confidence in the outlook. Further in the market, German inflation had little impact on European Central Bank (ECB) policy expectations as the rate was unchanged at 1.8% for September.
ECB’s hawk Lautenschlaeger’s speech yesterday didn’t reveal much for the Euro’s future but ECB council member Villeroy stated that the forcefulness of quantitative easing must be kept lower while policy is needed to remain supportive.
Euro area HICP figures for September are set for release today as inflation is targeting 1.6%, but with the fragile service price inflation release in Germany, downside risk threatens a forecast of 1.3%. Today also has data on German retail sales in August and the German unemployment rate.
There is the potential for an uncertain trading day due to month-end positioning and Catalonia’s planned independence referendum Sunday, which is currently banned by the Spanish government but none the less causing unease.
Data to Watch:
07:00 GER Retail Sales (YoY) (Aug), GER Retail Sales (MoM) (Aug)
07:45 FRA Consumer Price Index (EU norm) (YoY) (Sep)
08:00 CHF KOF Leading Indicator (Sep)
09:00 EUR Unemployment Change (Sep), EUR Unemployment Rate s.a. (Sep)
09:30 GBP Gross Domestic Product (YoY) (Q2), GBP Gross Domestic Product (QoQ) (Q2), GBP Consumer Credit (Aug), GBP Mortgage Approvals (Aug)
10:00 EUR Consumer Price Index (YoY) (Sep), EUR Consumer Price Index – Core (YoY) (Sep)
13:00 GBP MPC Member Cunliffe Speech
13:30 USD Personal Consumption Expenditures – Price Index (MoM) (Aug), USD Personal Spending (Aug), USD Core Personal Consumption Expenditure – Price Index (YoY) (Aug), USD Personal Income (MoM) (Aug), USD Personal Consumption Expenditures – Price Index (YoY) (Aug), USD Core Personal Consumption Expenditure – Price Index (MoM) (Aug)
13:30 GBP MPC Member Broadbent Speech
14:45 USD Chicago Purchasing Managers’ Index (Sep)
15:45 GBP BOE’s Governor Carney speech
16:00 USD FOMC Member Harker Speech
18:00 USD Baker Hughes US Oil Rig Count