EU ‘open but unconvinced’ by new deal
UK services PMI fell to 49.5 for September, down from 50.6 and below the forecast. The report was lacklustre as order backlogs fell and new business edged down and the labour-market belly-flopped. There was more evidence of political uncertainty detering international business. The effect on the Pound was muted by poor data releases globally and the political environment grabbed the attention.
EU Council President Donald Tusk stated that the EU remained fully behind Ireland and was open-minded on backstop proposals. The absence of an out-right UE rejection and suggestions of support from Conservative Party MPs helped Sterling climb. The UK pound peaked near 1.2400 on the Dollar, and 1.1300 on the Euro before fading. There were reports that the EU wanted the government to improve the offer within the next week with Sterling lower on Friday as the Euro traded around 1.1255.
The US Trade Representative signalled its intention to apply “WTO-approved tariffs on certain EU goods beginning October 18”. Taxes will come first and then a tedious process of US-EU trade talks begin. In the meantime, the cost for businesses and consumers will increase by 10% on large civil aircraft to 25% on agricultural and other products.
The economic outlook looks suddenly bleaker with consumer confidence already running at a low and a global economy teetering on the edge of recession. It is expected that the flow of funds moving into traditional safe-haven assets. Gold prices are moving higher towards the $1,500/oz mark. Oil market toils lower to a two-month low with WTI down 0.5% on the day.
Chicago Federal Reserve (Fed) President Evans stated he was concerned over the inflation outlook and would like to push the rate above 2.0% in order to balance a long period of under-shooting. He had noted the weak ISM data but was open-minded about the October meeting. The dollar failed to gain significant traction ahead of the New York open and the Euro held close to 1.0950.
The ISM non-manufacturing index declined to 52.6 for September from 56.4 previously which was below consensus forecasts of 55.0 and the lowest reading since August 2016. There was a sharp slowdown in both new orders and activity while employment registered only a marginal advance which triggered fresh unease over today’s employment data.
After spending the first half of yesterday moving sideways near 1.0950, The Euro gained traction against the Dollar during the latter part of the trading session as selling pressure surrounding the Dollar intensified following their dismal macroeconomic data release. The pair however, failed to break above the critical 1.1000 handle and went into a consolidation phase.
The final Euro-zone PMI services sector reading was revised down to 51.6 from the flash reading of 52.0. The composite index was only marginally above 50.0 and the weakest reading since June 2013 which suggested that the overall economy recorded only marginal growth. Fears over the outlook hampered the Euro as German yields declined once again.
As of writing, the Euro is trading against the Dollar was trading at 1.0966
Data to watch
13.30 USD – Average Hourly Earnings
13.30 USD – Non-Farm Employment Change
13.30 USD – Unemployment Rate
19.00 USD – Fed Chair Powell Speaks