Macron – Brexit decision by week’s end
Friday saw a dearth of UK economic data alongside reports that the EU’s Guy Verhofstadt had rejected the UK’s “repackaged” Brexit proposal and Irish PM Leo Varadkar stated his belief that a deal was still possible. With the deadline approaching, the government is committed to asking for a Brexit extension if there is no deal by October 19th, but much speculation centred on whether the government intended to do so.
The Pound lost ground against the Dollar after the US jobs data release, finding support below 1.2300. The Euro made only marginal gains on the day to finish the week near 1.1235. Futures market data revealed a small decline in bets against the Pound, but there is still potential for substantial short covering if political developments turn positive.
The weekend papers reported Emmanuel Macron calling for an EU decision, this Friday, on whether there is a realistic prospect of a deal by the end of October. Political tensions and volatility are set to intensify during the week.
US non-farm payrolls increased 136,000 for September which was fractionally below consensus forecasts, although the August increase was revised to 168,000 from 130,000. Unemployment declined to 3.7% compared to expectations of an unchanged 3.7% and this was the lowest rate since at least 1975 as the household survey recorded a further strong increase in employment. Average hourly earnings, however, were unchanged on the month compared with expectations of a 0.3% increase with the annual increase slowing to a 12-month low of 2.9% from 3.2%. There was a mixed immediate reaction with some relief that the headline data was not worse than expected following weak ISM data earlier in the week which had some impact in supporting sentiment.
The dollar made slight gains, but was unable to make significant headway and against the Euro settled around 1.0975. Boston Fed President Rosengren stated that indicators for consumer spending remained strong and that we need to worry about financial stability while unemployment is low and inflation close to the 2.0% target. Atlanta head Bostic stated that the Federal Reserve is looking to assess whether the economy is heading for a soft or hard landing.
The Euro seems to be consolidating around Friday’s close in the 1.0980 region at the beginning of the week. The rally against the Dollar appears to have met strong resistance in the 1.10 region. The bulls failed to extend the recovery beyond 1.10 the figure amidst increasing cautiousness on the upcoming US-China trade talks and key events later on in the week.
On the docket today, German data once again surprised to the downside after Factory Orders missed target at a monthly 0.6% during August with a reading of 0.4% being expected. Later in the session we have EMU’s Investor Confidence gauged by the Sentix Index.
Data to watch
09.30 EUR – Sentic Consumer Index
18.00 USD – FEd Chair Powell Speaks