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September

Sterling slips on yet more Brexit negotiating comment

Published: Monday 03 September 2018

  • Turkish Lira drops again on 17.9% inflation
  •  Slowdown in UK and EU manufacturing
​​By David Johnson

“It was the third of September, that day I’ll always remember.” Name that tune.
 
Welcome to September trading, everyone. Our US readers will be away from their desks as they celebrate Labor Day (sic). It has nothing to do with maternity I am told. Have a good one.
 
The rest of the world is still battling the news and fake news over Brexit. Theresa May’s plan has been well and truly hammered by both the pro-Brexit camp in her own party and some of the EU negotiating team as well. Is it a dead duck? That’s hard to tell, but this may well be the week in which we find that out. And, if her plan is scuppered, will the Prime Minister also find herself in the waste bin? All or none of these questions will be answered this week, but these concerns do explain the Pound stepping back from its Friday highs. It hasn’t dropped far – $1.29 and €1.1125 – but it has ruined any chance of an immediate continuation of the rally.
 
Turkish Lira falls again
 
This week started with Turkish inflation rising to 17.9% in August; something that will do nothing to stop the Turkish Lira’s decline. The drop in the value of the Lira is partly responsible for the higher cost of living and a weaker one will add to that problem. It is a vicious spiral.
 
Japanese Yen recovers against Pound
 
We have also seen a sharp rise in Japanese capital spending. The Sterling – Yen rate shot up on Wednesday last week, as did most GBP related exchange rates in response to the positive Brexit news, but this pair is back to where it started on Tuesday after this Japanese data and the Pound’s tumbles elsewhere.
 
EU and UK manufacturing growth falls
 
We were expecting a slowdown in Italian, German and the Eurozone manufacturing data today, and sure enough, while growth continues in the sector, it’s at the slowest rate for almost two years. A strengthening Euro will have made life a little bit tougher for the EU exporters, but there are also a very mixed feeling around the markets over global economic recovery. Today’s UK Manufacturing Purchasing Managers’ Index (PMI) was also expected to be a tad weaker, but not by much. However, while still showing growth at 52.8 (anything above 50 denotes growth), this is also the lowest for more than two years, as business optimism and employment in the sector drop.
 
As mentioned above, the UK versus EU exit negotiations (sometimes you just need a break from the word ‘Brexit’) will be the driving force behind the Pound’s direction.
 
Aussie Dollar could weaken this week
 
The Australian Dollar looks set to weaken through the week if the data forecasts are correct. No change is expected from the Reserve Bank of Australia overnight but Wednesday’s Gross Domestic Product (GDP) data is forecast to be significantly weaker and that would definitely damage the AUD. A move above AUD 1.80 is likely for the Pound in spite of Sterling’s weakness in other areas.
 
Trumps and Tweets mean volatility for USD
 
For its part, the US Dollar is driven by trumps and tweets. The US is playing tough with Canada over the North American Free Trade Agreement (NAFTA) negotiations; the president’s tough talking Tweets are wearing a little thin now, but that does appear to be his preferred negotiating style. Either way, the US Dollar is a little stronger on his latest 140 characters. The week brings a fair smattering of US data and concludes with the US employment report. So volatility is de rigueur.
 
Tune in…
 
Before you go googling the lyric in the first line, it was ‘Papa was a rolling stone’ by The Temptations, 1972. Have a great Monday.
World economic models based on two cows
 
SOCIALISM
You have two cows. You give one to your neighbour.
 
COMMUNISM
You have two cows. The State takes both and gives you some milk.
 
FASCISM
You have two cows. The State takes both and sells you some milk with coupons after invading the neighbouring country.
 
BUREAUCRACY
You have two cows. The State takes both, shoots one, milks the other, stores the milk while it decides what to do with it then throws the milk away because it has passed its ‘use by’ date and they are over their self-imposed monthly quota.
 
TRADITIONAL CAPITALISM
You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.
 
SURREALISM
You have two giraffes. The government requires you to take harmonica lessons from a melon carver in a rain ditch.
 
AN AMERICAN CORPORATION
You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead. You blame the death on Iran.
 
A FRENCH CORPORATION
You have two cows. You go on strike, organize a riot, and block the roads, because you want three cows and a two day week and more cigarettes.
 
A JAPANESE CORPORATION
You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called ‘Cowkimon’ and market it worldwide.
 
A GERMAN CORPORATION
You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.
 
AN ITALIAN CORPORATION
You have two cows, but you don’t know where they are. You decide to have lunch after visiting your tailor.
 
A SWISS CORPORATION
You have 5000 cows. None of them belong to you. You charge the owners for storing them.
 
A CHINESE CORPORATION
You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity. You arrest the newsman who reported the real situation.
 
AN IRAQI CORPORATION
Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb the hell out of you and invade your country. You still have no cows, but at least you are now a Democracy. you resist the democracy and reclaim your two cows.
 
AN AUSTRALIAN CORPORATION
You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate.
 
A GREEK CORPORATION
You have two cows. You borrowed them from France and Germany. They ask for some milk but you have already eaten the cows with some basil, a little oregano, a Greek salad and a good Robola from Cephalonia. Ouzo anybody? Opa!

Today's Major Economic Releases

Market BST Data/Event Previous Actual
CAD All Day Bank Holiday    
USD All Day Bank Holiday    
EUR 09:00 EU: Final Manufacturing Purchasing Managers' Index 54.6 54.6
GBP 09:30 UK: Manufacturing Purchasing Managers' Index 54.0 52.8

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news