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Eurozone half term reports good, UK finds out on Thursday?

Eurozone half term reports good, UK finds out on Thursday?

The latest UK government borrowing data printed weaker than expected with an increase in the September deficit from a year ago, maintaining concerns that the deficit would continue to grow over the next few months. The UK economist at Capital Economics, Paul Hollingsworth, expects Chancellor Philip Hammond to provide a “disappointing set of fiscal forecasts” for next month’s data releases.

Sunday papers have suggested that the UK would threaten to cut UK corporate tax rates to 10% if other EU countries look to take a hard-line stance on Brexit negotiations. The British Bankers’ Association have warned that the top tier banks are ready to relocate out of the UK early next year due to fears around Brexit. With little UK data out this week, the markets will keenly anticipate Thursday’s Third Quarter GDP results to quantify how much the UK economy has outperformed pre-Brexit growth estimates.

Fed President Williams stated on Friday that the US economy was in good shape and that gradual increases in interest rates are needed sooner rather than later to help sustain the economic expansion. With the Fed meeting next week, the next 48 hours will be the last chance to signal any potential for a November rate move, although there is a very strong probability that the bank will want to keep rates on hold at the November meeting.

The futures market pricing indicates that a 70% probability of a December rate hike has been priced in. The Dollar was close to eight-month highs against a basket of currencies during the Asian trading session this morning, opening at 1.2222 against the Pound.

Euro Consumer Confidence preliminary surveys showed a slight improvement from -8.2 to -8.0, in line with expectations. The single currency opened this morning around 1.1230 as the market reacted positively to the DBRS rating agency upgrading Portugal’s rating from “Junk” status. Critically this means Portugal qualifies for the European Central Bank’s bond purchase scheme.

Ratings agency Standard & Poor’s upgraded France’s rating from negative to stable; this will reduce the cost of borrowing for the French. European manufacturing data, published by Markit, will be watched closely today.

Data to watch: 8.30am Flash German Markit Service, Manufacturing & Composite PMI’s. 9am Flash Euro Markit Service, Manufacturing & Composite PMI’s. 1.30pm US Chicago Fed National Activity Index. 2.05pm US Fed’s Williams & Dudley speak. 2.45pm US Markit Manufacturing PMI. 6.30pm Fed’s Evans speaks. 7pm Fed Open Market Committee Member Powell speaks.

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