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August 2016

Sterling recovers on consumer confidence rise

Published: Wednesday 31 August 2016

  • Sterling recovers on consumer confidence rise
  • US employment data holds market attention
  • Euro weaker on German business confidence slide

Gfk revealed a recovery in UK consumer confidence. Their index showed a -12 reading in the immediate aftermath of the Brexit vote but eased back to -7 in August. A business confidence index published by Lloyds shows an improvement in business confidence and 33% of respondents saying they are likely to hire more staff. Sterling has had a pretty good start to the week and now stands at €1.175 and $1.31 at the interbank level. UK mortgage data due today is likely to show a slight reduction in lending rates in spite of the fall in the BOE base rate. I suspect that may reverse itself in the August numbers which will reflect the reaction of the mortgage lenders; some of which have cut their base rate in line with the BOE.
New Zealand business confidence was a little lower in August than the previous month. 15.5% of the surveyed businesses were optimistic about the future compared to 16% the previous month. That flies in the face of the RBNZ’s efforts to boost confidence by lowering interest rates. The strong NZ Dollar is likely to be a factor here because it makes NZ goods expensive overseas and brings down the cost of imports, making NZ produced goods relatively more expensive. The NZ Dollar is a tad weaker on that news.
US Dollar traders will have all eyes on the ADP payroll report today. This is generally not a major data release because the official employment report will arrive a couple of days later but the strong hints at interest rate hikes from the Fed Chair Janet Yellen have put a new slant on this data. Will companies reduce hiring rates because of the threat of higher borrowing costs? Who knows but this data might give some clues. The USD could have a busy afternoon if the report shows a significant slowdown and a jobs gain of 150,000 or less would represent that.
The fall in German business confidence that kicked off the week allowed the Euro to weaken yesterday. Reports that the Brexit effect was starting to be felt in Germany are a little overdue really; the UK’s vote for departure from the EU was always going to impact the German economy but we hadn’t seen any solid signs of it up until yesterday. Today’s data includes a swathe of EU inflation numbers and the German unemployment figures. The latter is expected to be another small step in the wrong direction. Further pressure will be heaped on the Euro if that is so.
And, as you will have noticed, August has almost entirely gone. The last day of the month brings traders settling and squaring up speculative positions and, as this $5.3 trillion a day market is mostly made up of speculators, those volumes can be huge and therefore market-moving. Be ready for volatility today.


A notorious gangster died and went to hell. He is in the reception area and on a huge wall is a mass of clocks of all shapes and sizes. Even more interesting is the fact that the hands on each of the clocks are moving at differing speeds and they are turning in an anti-clockwise direction. While he ponders that, Satan turns up and the gangster asks him what the clocks are all about.
"They are counting down the time for each person’s arrival.” Says Beelzebub. “So the more bad things a person does and the more lies they tell, the faster their clock hands turn and the sooner they will arrive at this very place.”
Just then the gangster sees a plaque under one of the clocks with his ‘associate’s’ name on it. It is turning at three times the speed of a normal clock. “Well that kind of makes sense,” says the Gangster. Then he notices two blank spaces. The plaques below the gaps read Donald Trump and Hilary Clinton.
“Geez,” says the gangster. “Where are the clocks for those two wise guys?”
“Oh we lent them to the Ferrari racing team.” Says the Devil. “The fans on their wind tunnel broke and they needed something in a hurry.” 


Today's Major Economic Releases 

Market BST Data/Event Previous Expected
EUR 10:00 EU: CPI flash estimate y/y 0.2% 0.3%
EUR 10:00 EU: Core CPI flash estimate y/y 0.9% 0.9%
EUR 10:00 EU: Unemployment rate 10.1% 10.0%
USD 13:15 ADP non-farm employment change 179k 174k
CAD 13:30 Canada: GDP m/m -0.6% 0.4%
USD 15:00 US: Pending home sales m/m 0.2% 0.7%
USD 15:30 US: Crude oil inventories 2.5m 1.1m
NZD 23:45 New Zealand: Overseas trade index q/q 4.4% -1.4%

FX Research by David Johnson

Daily Currency Analysis with Chris Verdet

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