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Draghi’s speech anticipated as key to enlightenment

Draghi’s speech anticipated as key to enlightenment

GBP
UK public sector spending figures beat forecasts for July, but the Pound is inching lower against the Euro as markets remain concerned by the fact borrowing continues to outpace the previous financial year.

The UK government finances data was stronger than expected with a £0.2bn surplus for July as tax receipts remained strong. A quick round of gains for the Pound was quickly ended as markets focussed on the fact that borrowing in the current fiscal year is already £1.9 billion higher at £22.8 billion than the same period in the 2016-17 financial year. This is an increase of 9%, adding to fears that Chancellor Philip Hammond is on course to overshoot his borrowing targets for this year.

Overall Sterling sentiment remained weak, with a lack of confidence in the growth outlook while Brexit speculation continued to sap underlying support. The UK currency retreated to 8-week lows near 1.2800 against the Dollar while the Euro strengthened against Sterling, bringing GBPEUR to a fresh 10-month low as the Pound was unable to gain significant respite.

USD

The US Dollar Index, gauging the Buck against its main rivals, is looking to continue its positive momentum around the mid-93.00s for the time being. The index managed to regain buying interest yesterday following Monday’s pullback, bolstered by the news that Trump’s administration would be re-assessing its long-awaited tax reform plans.

The news propelled both the Greenback and the US 10-year yields, as Cable hit monthly lows of 1.2811 whilst the Euro against the Dollar closed at 1.17436.

US Housing Price Index had little impact, with a smaller-than-expected 0.1% increase in June offset by a stronger-than-expected Richmond Fed manufacturing index of 14 for August, which was no different from the previous month. The Philadelphia Fed non-manufacturing index for August showed a strong reading at 31.8 from 23.4 previously with a higher reading for the wages and benefit cost index.

Data-wise today in the US market, advanced Markit’s PMI is due along with new home sales, the EIA weekly report on US crude inventories, and the speech by Dallas Fed Kaplan. Market attention, however, should start to shift towards the Jackson Hole Symposium on Thursday and Friday and the speech by Chief Janet Yellen.

EUR

German ZEW economic expectations index declined to 10.0 for August from July’s 17.5. This failed to match the expected 14.8 and was the lowest reading since October last year, although there was a small increase in the current conditions index. After a prolonged spell of strengthening data, the ZEW survey had some impact in dampening confidence.

The Euro was also vulnerable to a retreat (except to Sterling) with position adjustment a notable feature ahead of Draghi’s scheduled speech this morning. The Euro risks were seen to have increased given evidence that long positioning remained relatively stretched, although there will be a fresh surge in buying if Draghi makes hawkish references and avoids criticising the Euro’s level. The latest Euro-zone PMI data will also be released with the Euro consolidating just above 1.1750 in early Europe on Wednesday.

Data to watch:
8:00am Mario Draghi speech
8.30am German Markit Services, Manufacturing & Composite (August)
2:05pm Fed’s Kaplan Speech
2:45pm US Markit Services, Manufacturing & Composite (August).

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