No hope for EU
The first UK economic data of the week provided a welcome distraction. UK unemployment remained at 4.0%, a 45-year low. Market focus was on average earnings, and headline year-on-year earnings rose to 3.1% from 2.9%, the strongest figure since 2009, while the core rate edged up to 2.7% from 2.6% previously. The labour data reinforced expectations of further Bank of England rate hikes if political conditions stabilise and Sterling strengthened, although political concerns tempered the reaction.
The UK Cabinet meeting passed without making headlines. EU Council President Donald Tusk was less than hopeful of a deal when stating that there was no ground for optimism and that Prime Minister May will be asked if the UK has concrete proposals to bring to today’s EU Council meeting. There was increased doubt as to whether the EU would agree to a special Brexit Summit in November, and some suggested that the EU may move to a “no-deal” position which would be very difficult to reverse. There were also reports that the EU would be willing to extend the transition period until the end of 2021.
Sterling fell to near 1.3170 against the Dollar while the Euro recovered to 1.1395 from lows near 1.1428. Today sees the latest UK inflation data release and nervous trading continues due to rumours of potential compromise moves at the EU Summit.
The US Dollar is wobbly this morning, down 0.13% on a trade-weighted basis against the other major currencies.
Industrial production and capacity utilisation in the US came broadly in line with the market’s expectations and failed to provide a trading impetus. The market is still cautious as geopolitical risk flared with tensions increasing between Riyadh and Washington.
In the US, the Federal Open Market Committee meeting minutes are on the calendar. The Federal Reserve (Fed) remains on autopilot in terms of hikes, but we will look out for comments on balance sheet reduction plans and what the future monetary policy framework is going to look like.
The German ZEW survey (an indicator of the economic future of Germany which is an aggregate sentiment of c. 300 economists and analysts) and the equivalent for the EU came in well below expectations which halted gains made by the Euro. Further, President Juncker stated that the Eurozone would “revolt” if the EU approved the Italian budget, which did nothing to help the single currency.
Strong data out of the US meant the Euro struggled against the Dollar after initially touching the 1.16 mark due to Italian bond yields gaining strongly. Yesterday also saw negative news surrounding Brexit negotiations which meant the Euro retreated to around the 1.1550 mark.
Today sees the European Central Bank’s (ECB) Praet Speech, RPI and CPI figures out of the UK, CPI figures out of the EU and German Buba President Weidmann’s speech. Today also sees the start of the EU Brexit Summit which markets will be watching closely.
Data to Watch:
24h EUR EU Brexit Summit
08:30 GBP Retail Price Index (MoM) (Sep)
08:30 GBP Retail Price Index (YoY) (Sep)
08:30 GBP Consumer Price Index (MoM) (Sep)
08:30 GBP Consumer Price Index (YoY) (Sep)
08:30 GBP Core Consumer Price Index (YoY) (Sep)
09:00 EUR Consumer Price Index – Core (MoM) (Sep)
09:00 EUR Consumer Price Index – Core (YoY) (Sep)
09:00 EUR Consumer Price Index (MoM) (Sep)
09:00 EUR Consumer Price Index (YoY) (Sep)
12:30 USD Housing Starts (MoM) (Sep)
12:30 USD Building Permits (MoM) (Sep)
18:00 USD FOMC Minutes