Brexit? What Brexit?
US NonFarm payrolls disappointed on Friday with only 151k jobs added for August compared with expectations of around 180k. There was also an upward revision of July’s figure to 275k from the previous 255k. Unemployment held at 4.9%, also missing the expected to drop to 4.8%, while the average earnings increase was 0.1% for the month and 2.4% over the year.
The Dollar weakened initially as expectations of a near-term Fed rate hike declined, although there was a significant reversal later on the belief that employment growth could still be sufficient to trigger a Fed move. US trade data was better than expected with exports rising to its strongest level for ten months.
Friday’s UK construction figures showed a significant rebound from last month’s seven-year lows. The PMI index for August rose to 49.2 from 45.9 previously with all sectors showing evidence of a stabilisation in orders. Sterling rallied on confirmation that Brexit fears have not yet materialised, although the impact was less pronounced than it was on Thursday. The Euro again dipped below the 1.1900 level versus the Pound. Sterling rose again on release of the US payrolls data, but was unable to hold one-month highs above the 1.3300 level against the Dollar.
Following on from the stronger than expected manufacturing and construction data, there will greater confidence in the UK’s outlook. Today’s services PMI data will be very important for underlying sentiment and potential monetary policy developments.
The Eurozone’s producer price index printed better at -2.8% versus last month’s -3.1%.The Euro has edged higher this morning, although there are some German political concerns after exit polls suggested Merkel’s CDU party was in third place in Mecklenburg-Vorpommern state elections, behind the SPD and AfD anti-immigration party.
Data to watch: 09:00 EUR Markit Services PMI (Aug), Markit PMI Composite (Aug). 09:30 UK Markit Services PMI (Aug). 10am EUR Retail Sales (YoY) (Jul).