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Sterling up on Brexit deal talk

Published: Monday 10 September 2018

  • Japanese growth strongest in two years
  • Chinese Trade Surplus with US grows
  • UK Gross Domestic Product awaited - small gain forecast
​​By David Johnson

Economic data from China and Japan sets the tone for markets
Plenty of activity in the Far East overnight. China’s Trade Surplus with US trade rose sharply in August; recording a record high $31.05 billion. That both strengthens Trump’s calls for sanctions and confirms how important the China – US trade relationship really is. China’s Consumer Price Inflation jumped to 2.3% in August from 2.1% previously. That bodes well for demand from China for raw materials and gives a little help to the likes of the Japanese Yen and Australasian currencies.
Japan also posted some strong data overnight; economic growth picked up to an annualised 3.0% in Q2, from 2.6% previously. That was well above expectations and the fastest pace since 2016. The Japanese Yen gained on the news.
Sweden’s election appears to be gridlocked after the right wing Sweden Democrat Party (SD) made significant gains amidst concerns over large scale immigration. A lengthy wrangle over a coalition is likely and many fear watered down politics with a lean to the right to appease those who voted for SD.
Pound picking up but vulnerable to Brexit talk
Sterling picked up late last week when it seemed that the EU would accept linking the £39 billion divorce payment from the UK to a trade deal of some sort. Predictably, market participants took that as a positive before knowing the details of the agreement, but it does point to the likely gains Sterling will make when a final deal is actually announced. This week started with a surprise gain in the month on month economic growth for the UK, but a considerable drop in industrial and manufacturing production, as well as an expansion of the UK’s trade deficit, so these economic results all essentially balance each other out to have a muted overall impact on Sterling. Traders and analysts are much more focussed on anything with the word ‘Brexit’ in the headline. That’s kind of inevitable, I guess, with just 200 days to go before Britain ceases to be a part of the EU club.
US Dollar drops
Last week finished with a surprisingly strong US employment report and the weekend brought the usual Twitter tsunami (somewhat appropriate when you consider the thesaurus also lists tsunami as a synonym for bore) from the US President. Threats of further sanctions against Chinese goods have done little to boost the US Dollar, which is slipping against almost all other currencies. There are a couple of Federal Reserve speakers in action today. Most likely they will toe the party line and talk about two or three more rate hikes from the Federal Reserve over the next year. 
Win at all costs?
That’s about all the market news today, but there is a really scary piece of video doing the rounds from the MotoGP race in San Marino. Attempting to pass Stefano Manzi, Romano Fenati is seen to reach across to pull the brake level on Manzi’s bike whilst the two of them were doing 140MPH on a straight. He was disqualified from the race, but why he hasn’t been charged with attempted murder is anybody’s guess. That is a crazy stunt. ‘Anything to win’ can go too far.

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Today's Major Economic Releases

Market BST Data/Event Previous Forecast
EUR 09:30 EU: Sentix investor Confidence 14.7 12.0
GBP 09:30 UK: Gross Domestic Product 0.1% 0.3%
GBP 09:30 UK: Manufacturing Production 0.4% -0.2%
GBP 09:30 UK: Goods Trade Balance -10.7b -10.0b
USD 20:00 US: Consumer Credit 10.2b 14.5b

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