Uncertainty showing in worsening data
Bank of England Monetary Policy member Michael Saunders stated that Brexit uncertainty, if not solved, could lead to looser monetary policy if global growth remains disappointing. He added that the effects of the uncertainty are becoming clear in UK data’s worsening results. Assuming a no-deal Brexit outcome was avoided, policy could go either way but it was plausible that the next move for UK interest rates could be down. As the rhetoric overall was dovish it triggered Sterling selling and a slide below 1.2300 on the Dollar.
Irish Foreign Minister Simon Coveney stated the UK hadn’t yet sent a serious proposal but the EU was ready to negotiate. Brexit Secretary Steve Barclay stated that talks are coming to a moment of truth, there is still a long way to go but a deal could be made with goodwill. Sterling was held below 1.2300 on the Dollar and the Euro advanced to1.1235. Futures market data continued to indicate a large short Sterling position (bets against the Pound), maintaining the potential for substantial short covering (rapid Sterling buying) if the situation changes. The Lloyds business barometer edged up in September and the Pound gained slightly as parliamentary tensions remain high and the Conservative Party conference continues.
US durable goods orders increased 0.2% for August, above consensus forecasts of a 1.1% decline, with an underlying 0.5% increase, although the total was inflated by defence orders and core PCE price index increased 0.1% for August compared with expectations of 0.2%, although the year-on-year increase met expectations of 1.8% from a revised 1.7% previously.
Philadelphia Fed President Harker stated he’s lack of support for the September rate cut and that the Central Bank should hold firm on rates, let things settle and watch how events play out. Markets are still pricing in close to a 70% chance that rates will be cut again this year. The Euro found support close to 28-month lows of 1.0900 and rallied to around 1.0940 as the Dollar corrected slightly from a 3 week high.
The Euro has started the week on a positive footing and is lifting itself against the Dollar to the 1.0940 region. Adding to Friday’s gains alongside extending the rebound from fresh 2019 lows. Trade jitters appear to have returned following news that the White House could delist some Chinese companies from US markets and limit US investments in China.
President M.Draghi, speaking towards the end of last week stressed that most of the risks facing the euro area come from outside the region, while adding that the monetary stimulus could stay for a long time.
Datawise today, German Retail Sales has already been released, expanding at a monthly 0.5% during August whilst Spanish Flash CPI contracted to 0.1% from 0.3% previously. Later, the German labour market figures are due seconded by advanced inflation data for the current month.
Data to watch
09.30 GBP – Current Accounts
09.30 GBP – Final GDP
14.45 USD – Chicago PMI