Confidence in Europe seems to be falling faster than UK...

Week Commencing Monday 29th August 2016


Germany: Brexit biting hard on the continent!

German Ifo business climate unexpectedly fell to a six-month low level of 106.2 in August, raising concerns that the historic Brexit vote has clouded growth prospects for the Eurozone’s largest economy.

Also, the nation’s Ifo business expectations index surprisingly eased to 100.1 in August, defying market expectations for an advance to 102.4 and compared to a revised reading of 102.2 in the previous month.

The DAX of Germany dropped 0.88 percent and the CAC 40 of France fell 0.65 percent. The FTSE 100 of the UK declined 0.28 percent and the SMI of Switzerland finished lower by 0.71 percent.

France fared equally dismally, with French manufacturing confidence weakening unexpectedly in August. The manufacturing sentiment dropped to 101 in August from 103 in July. Economists had forecast the indicator to remain unchanged at 103.

This all comes in the background of considerably better than expected UK retail sales, indicating the UK is yet to feel a considerable post-Brexit pinch.

UK: Investment following despite Brexit concerns!

Last year saw a record number of overseas investments in the UK, making the country the most popular European nation for external financiers.

The total number of projects funded by foreign direct investment rose 11 percent to 2,213, a Department for International Trade statement stated on Tuesday. FDI created 116,000 jobs within the year, in industries such as life sciences, financial and professional services, and energy infrastructure.

The US retains its top spot on the investment table with 570 projects, followed by China and then India with 156 and 140 projects respectively. Foreign investment interest in the UK has held up since June 23, with sectors such as commercial property, healthcare and retail seeing similar levels of inflows as before the vote.

However experts have warned that continued activity, post-Brexit, is largely due to the collapse of Sterling since the vote.

US: Home building continues skywards!

Sales of newly built US houses rose in July to the highest level in nearly a decade in further news that the US is surging ahead despite global growth concerns.

Purchases of new single-family homes rose 12.4 percent in July from a month earlier to a seasonally adjusted annual rate of 654,000, the Commerce Department said Tuesday. That was the highest recorded level of activity since October 2007.

Sales of previously owned homes rose to their strongest pace in nearly a decade in June, which is important as sales of newly built homes account for less than a tenth of total U.S. homebuying activity.


FX Forecast

EUR/USD’s fall last week indicated that the recent uptick in the pair may have come to an end, with bias now returning to the downside. This may well be especially acute should we see a positive unemployment print state-side. A break of the 1.09 support this week would indicate see a break from the range, while 1.14 should provide some considerable resistance to EUR upside.

GBP/USD rebounded last week after the pair consolidated at 1.2794. Further rises cannot be ruled out, however it appears the currency has settled around the 1.30 pivot. Upside should be limited to the 1.34 region while any move back towards the 1.27 should see Sterling provide a fightback.

GBP/EUR also rebounded last week, with the pair currently talking the 1.17 pivot. Some decent UK data this week could see a test of 1.1800, with 1.1764 representing the 85p mark. Given the above, we expect the pair to trade the range with bias once again to the upside.


Economic Calander for the Week

UK Data:

Given the UK bank holiday, we have a relatively light week ahead of UK data. All eyes will remain on the PMI’s, of which we have both manufacturing and construction to look forward to. Starting with manufacturing, we expect a slight uptick on the month to 49.0 from 48.2, indicating the sector remains in contraction however the pace of contraction is slowing. Construction took a large post-Brexit hit, however again we expect to see a slight improvement from 45.9 to 46.1 on Friday. All in all, a mildly positive week for the UK.

US Data:

We have a decent week for US data, with CB consumer confidence starting the ball. We expect a slight downside revision to this indicator from 97.3 to 97.0. The Non-farm employment change and payrolls are the highlight, with both expected to see mild declines after last month’s bullish prints. We do however expect the unemployment rate to drop by 0.1 pp to 4.8 percent.

We will also be watching Pending Home Sales and Crude Oil Inventories on Wednesday. This should present a mixed bag for the week, although a positive move in the unemployment rate will catch the headlines.

EU Data:

We have a light week for Europe with CPI the highlight on Wednesday. We expect the measure of inflation to continue to climb, albeit slowly, to 0.3 percent on the month. This should go some way to demonstrate that the ECB’s monetary programs are working and there is light at the end of the tunnel.



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