Sterling Hinging On Brexit Update
UK August mortgage approvals increased to 85,000 from 66,000 previously, above consensus forecasts of 72,000, the highest reading since October 2007. There was further evidence of pent-up demand and the impact from the stamp-duty cut. Bank of England Governor Bailey reiterated that negative interest rates were in the bank’s toolbox but also stated that the bank was not out of ammunition and can act rapidly if needed. According to Bailey, the economy had recovered more strongly than expected, although there was evidence that the recovery was now fading.
There were no major developments surrounding Brexit trade talks with the formal negotiating round starting in Brussels and continuing over the next couple of days. Sterling held steady against a weaker Dollar but failed to move above 1.2900 whilst the Euro strengthened and pushed the Pound down to 1.0935.
The US August goods trade balance widened to a record high of $82.9bn from a revised $80.1bn previously with import growth out-pacing exports on the month.
Consumer confidence strengthened sharply to 101.8 for September from 86.3 previously and well above consensus forecasts of 89.2. There was an increase in the current conditions component and sharper gain in the expectations index. Consumers were more optimistic over general economic conditions and the labour market.
New York Federal Reserve (Fed) President Williams stated that there is a lot of downward pressure on inflation and the central bank needs to offset that. He also commented that he was not worried about inflation as the Fed has proved it can rein it in. After a meeting with Treasury Secretary Mnuchin, House Speaker Pelosi was optimistic that a fiscal support agreement could be reached this week, but there was still no evidence that the Senate would agree to any package.
There was an acrimonious US presidential debate with little in the way of political substance with markets still uneasy over the risks of a disputed election outcome and US equity futures declined.
Although there were some expectations that month-end position adjustment would underpin the dollar, the US currency steadily lost ground during Yesterday with the Euro strengthening to highs near 1.1750.
There was a net improvement in business confidence for September with the industrial index at -11.1 from -12.7 previously while the services sector at -11.1 from -17.6. German consumer prices declined 0.2% for September with the year-on-year rate also at -0.2% from 0.0% previously and below market expectations of -0.1%. The Euro-zone inflation data will be released on Friday and any further decline from -0.2% previously would reinforce ECB concerns over inflation trends. The ECB will inevitably maintain a highly-expansionary monetary policy with further policy debates within the bank.
There were further reservations over the Euro-zone coronavirus developments with fresh restrictions in the Netherlands and further measures being introduced in Germany. German Chancellor Merkel warned over the situation in Germany and also stated that a delay to the EU recovery fund was increasingly likely.
As of writing, the Euro currently trades around the 1.1730 mark against its US counterpart.
Data to watch
08:20 – EUR – ECB President Lagarde Speaks
13:15 – USD – ADP Non-Farm Employment Change
13:30 – USD – Final GDP
14:45 – USD – Chicago PMI
15:00 – USD – Pending Home Sales