- Sterling dives but data improves
- EU service sector slides
Sterling continues to feel the pain of the Brexit strain and we start Wednesday with the Pound at a 31 year low against the USD and a three year low against the Euro. I remain surprised by the strength of the Euro, given the underlying weakness in most Eurozone economies. I guess the size of the overall Eurozone economy adds security but I still fervently believe the Euro is intrinsically overvalued.
Nonetheless, Sterling wasn’t helped by a slowdown in the decline of UK shop prices. With Sterling so weak, I cannot imagine that slowdown will last. Lower buying power for the Pound means higher import costs and that stokes inflation, so these things are self-levelling to a degree.
The International Monetary Fund has come in for a lot of criticism for its pessimism prior to the EU referendum. Nothing that they forecast has come to pass but the IMF has a long and proud tradition of getting their forecasts wrong, so no one should be surprised. They are not alone. The emergency budget didn’t happen, the tax hikes haven’t happened and the dive in activity hasn’t been as dramatic as expected. The weak Pound has dragged in increased investment to the UK equities market and the Service Sector PMI, released this morning, shows further growth. The index at 52.6 is above expectation and above the median 50 level; so the sector that accounts for the lions-share of GB PLC is still buoyant. By way of contrast, service sectors across the Eurozone fell short of expectations in September.
This afternoon brings a raft of US data including their Service Sector PMI and durable goods orders. We will also get the ADP private payrolls figures and the trade balance. None of this is likely to shake the US Dollar’s attractiveness as a safe place to store funds when everything else looks gloomy. So I doubt Sterling will have a sudden resurgence today.
In other news, the new leader of UKIP, Diane James lasted just 18 days before the pressure forced her to quit. Another woman in the news is Amy Turner, who hopes to have created a new world record by completing one mile in 17 minutes 22.86 seconds - three minutes under her 20-minute target on a space hopper. Now that’s an achievement we would all like on our CVs.
Vladimir Putin visits a school and is in a class of 13 year olds. He asks if anyone has any questions about World politics. Loads of hands go up. He points to one boy who stands to address the President.
“Hello President Putin. My name is Viktor. I have three questions. What is Russia’s economic gain from invading Crimea? What are we getting out of the bombing in Syria? And why do you keep doing publicity shots with your shirt off?”
Just as the President opens his mouth to speak, the bell sounds. So Putin says they will continue after recess and the children all file out.
When they return to the classroom, they sit and Putin asks for any questions again. He points to another boy with his hand held high.
“Hello President Putin. My name is Mikael and I have five questions. What is the economic gain from Russia invading Crimea? What are we getting out of the bombing in Syria? Why do you keep doing publicity shots with your shirt off? Why did the recess bell go off 18 minutes early and where is Viktor?
Today's Major Economic Releases
||UK: Services PMI
||EU: Retail sales m/m
||US: ADP non-farm employment change
||Canada: Trade balance
||US: Trade balance
||US: ISM non-manufacturing PMI
||US: Factory orders m/m
||US: Crude oil inventories
Daily Currency Analysis by David Johnson
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