Busy week ahead for Sterling...
Week Commencing Monday 4th September 2017
UK: Manufacturing surprises with a solid rebound ... finally some good news!
UK Manufacturing PMI smashed through expectations in August, after data showed activity jumped to a four month high in August.
The sector rose to 56.9 from 55.1 in July, considerably higher than market expectations of 55.0 for the month. The data showed production rose at its steepest pace in seven months, with growth in output, new orders, employment, suppliers' delivery times and stocks of purchases.
Demand was chiefly driven by domestic customers, but customers also reported new export orders from mainland Europe, the US, China and Australia. Despite the news, the Pound barely reached to the news, making a brief gain versus the Dollar before falling back to 1.2928.
Meanwhile, Sterling edged up a meagre 0.1 percent against the Euro, settling at 1.0866. This comes as Brexit talks intensify, with the third round of talks in Brussels underway last week. It seems unlikely that the so-called “sufficient progress” stage has been met to enable discussions on future trading relations, and as such Markets remain on high alert. Will the politicians find a way to break the deadlock!!
US: Jobs disappoint ... what Trump tweet can get out of this one!
The US economy added 156,000 jobs in August, less than the previous month and below expectations. Analysts had expected US non-farm payrolls to rise by between 175,000 and 185,000 last month.
The unemployment rate ticked up from 4.3 percent to a still-low 4.4 percent, the Labour Department said Friday. The government also revised down its estimate of job growth in June and July by a combined 41,000, leaving an average monthly gain this year of a solid 176,000.
One persistent soft spot in the job market is pay raises, which remain tepid. Average hourly pay rose just 2.5 percent over the 12 months that ended in August. Wage growth typically averages 3.5 percent to 4 percent annually when unemployment is this low.
The slowing job gains, coupled with uncommonly low inflation, might make the Federal Reserve hesitant to raise its key short-term interest rate by December, when many Fed watchers had foreseen the next rate hike.
Sterling (GBP) - Sterling remains under Brexit related pressure, despite the solid Manufacturing PMI numbers. Having been trading in the 1.07’s versus the EUR and 1.27’s versus the Greenback, these current “highs” seems unsustainable. This maybe reversed if we see a decent Services PMI print this week, however in general bias continues to the downside.
US Dollar (USD) - The Greenback continues to struggle to build traction versus most majors, especially with its recent jobs posting. This is likely to continue, given traders re-evaluation of the potential US rate hike curve being flattened. Expect EUR/USD to continue to trade in the 18’s, potentially pushing 19.
Euro (EUR) - The Euro is maintaining its bullish stance, despite giving some ground to Sterling last week. We expect this trend to continue as EZ news continues to surprise to the upside. Expect 1.07 this week versus Sterling, especially if we see weak Services numbers.
Economic Calander for the Week
In the UK we await the results of August’s Services and Construction PMI surveys, with Construction looking set to increase to 52.0 and Services to decline from 53.8 to 53.5.
We then turn our attention to the end of the week with UK Industrial and Manufacturing Production. We expect IP to come in flat at 0.3 percent for the month, while Manufacturing will edge up markedly to 1.7 percent form 0.6 percent previously.
We start the US week with Factory Orders, which seem likely to disappoint with a -3.3 percent print this month. This is followed by Initial Jobless Claims on Thursday, which is widely expected to edge up to 242k from 236k last week.
Finally, US Consumer Credit on Friday should edge up to a sizable USD 15b from June’s 12.397 billion.
The main release for the Eurozone is EZ Retail Sales, with markets expecting a sizable decline from last months bullish 3.1 percent print, down potentially to 2.5 percent on the month. Other releases include Eurozone GDP, which is likely to be confirmed in at 2.2 percent.
We also have the ECB meeting for the month, and while we do not expect any policy shift and mention of Brexit during the press conference could stoke volatility.