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October 2017

Sterling bounces ahead of Bank of England meeting

Published: Monday 30 October 2017

  • Sterling bounces ahead of Bank of England meeting
  • Euro hampered by Catalan story
By David Johnson
Euro suffering as events unfold in Spain
At the time of writing, Spain has exerted national rule on Catalonia and yet the leaders of the regional government are planning to turn up for work on Monday as though nothing has happened. The EU is keeping schtum on the matter and allowing Spain to resolve its own problems, but the Euro is suffering.
That might be welcome in Germany, where exporters will love the advantage it offers for overseas buyers, but it may stoke inflation on imported goods and that reinforces the argument that the European Central Bank (ECB) needs to start raising interest rates and/or toning down their Quantitative Easing (QE) programme faster and more steeply. The Sterling – Euro rate is testing €1.13 and the Euro – USD rate is pushing down towards $1.16. Monday’s data will have some impact, but the Eurozone Consumer Confidence data isn’t likely to override the money supply matters.
UK housing market feels the pressure
This morning’s mortgage data showed some pressure on the British housing market. 66,232 mortgages were approved in September; down slightly from an upwardly revised August figure of 67,232. Consumer borrowing overall is still strong, but if the Bank of England (BoE) decides to raise the base rate by 25 basis points on Thursday, that will impact borrowing levels a little.  Sterling is undoubtedly seeing some strength from the forecasters, who say the BoE will do precisely that, so the risk is that the UK’s central bank decides to pause for longer. Sterling would drop if that were the decision. Beware the unexpected.
US Federal Reserve also considers interest rate hike
This afternoon’s data includes US personal income and expenditure figures.  Both sets of numbers are expected to have edged higher from last month’s dip and that would be good for the USD. It would also strengthen the hand of the Federal Reserve, which is edging towards an interest rate hike and/or a QE budget cut. They are, though, unlikely to make any changes of that sort when they meet on Wednesday.
Activity expected for Australasian markets – be prepared
The markets will be busy overnight as well. Japanese employment data, New Zealand’s Business Confidence survey, Australia’s New Home Sales and China’s Manufacturing Sentiment will all be released overnight. Volatility is not guaranteed, but is highly likely; especially with Asian and Australasian currencies. It may be worth leaving an automated order in the market to grab some cheap currency while you are grabbing some ZZZZs.
Sporting success for the UK

And we had some amazing sportingsuccess over the weekend. Lewis Hamilton became the first UK driver to win four Formula One world titles after a bizarre race in Mexico. That’s a massively impressive story. And just as impressive, the Under 17s England Team won their Football World Cup. So England holds the under 20s and the under 17s version of the Football World Cup. Come on the old boys.
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Quote of the day

“My brother was told that he wouldn’t walk, that he wouldn’t be able to play drums, that he wouldn’t be able to race a car – and he’s done all those things. He’s defied the odds, defied disability. I look at him and I’m so inspired, by his mentality and by how incredible the body and the mind are. There’s really nothing you can’t do. My brother has proved that.”

Lewis Hamilton 

Today's major economic releases

Market BST Data/Event Previous Expected
GBP 10:30 UK: Net Lending to Individuals  5.6b 5.5b
GBP 10:30 UK: M4 Money Supply 0.9% 0.7%
GBP 10:30 UK: Mortgage Approvals 67k 66k
USD 13:30 US: Personal Spending 0.1% 0.8%
USD 13:30 US: Core Personal Consumption Expenditures Price Index 0.1% 0.1%
NZD 22:45 New Zealand: Building Consents 10.2% 10.2%