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Brexit’s not all bad – UK exports at two-year high

Brexit’s not all bad – UK exports at two-year high

Positive sentiment surrounding Sterling pushed the British currency to a second consecutive day of gains yesterday, with GBPEUR rising to seven-day highs and GBPUSD peaking just past 1.3200.

CBI Industrial Order Expectations printed at -5 yesterday, showing that order volumes have fallen. However the market expected a fall to -9 so this was not as severe as first feared. Furthermore, the CBI survey reported that orders for British manufacturing exports rose in August to their highest level in two years.

In Threadneedle St, the Bank of England received fewer than expected offers in the latest gilt purchase operation, pushing yields lower and forcing the Pound down again. The bond-related negative effect on Sterling will remain over the medium term.

German PMI data disappointed yesterday, but it was swiftly followed by Europe’s PMI data for August which printed in line with expectations. The composite PMI reached 53.3 for the Eurozone, rising to a seven-month high, up from July’s 53.2. The French services sector showed improvement, bucking the trend for Europe. Overall the impression is that the  Eurozone is on course for modest economic growth for August.

The US new home sales data was much stronger than expected with the annualised rate at an eight-year high but the August Manufacturing PMI revealed a decrease. The latest Fed Reserve deposit rate (overnight interest for banks) meeting minutes revealed that votes for a deposit rate increase in July have risen to a majority. This strongly suggests that regional banks are pushing for a rate hike and the governors will be under pressure to respond.

Dallas Fed President Kaplan commented that an interest rate increase is warranted if the favourable job trend continues and that a rate rise is approaching. The Dollar gained some support after the US data, although there was still little evidence of momentum. Trading volumes  for major currencies are still at seasonally (very) low levels.

Data to Watch: 7am EUR German Final GDP quarter-on-quarter. 9:30am GBP BBA Mortgage Approvals. 2pm USD HPI month-on-month. 3pm USD Existing Home Sales.

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