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September 2016

Sterling up on strong manufacturing data

Published: Friday 02 September 2016

  • Sterling up on strong manufacturing data
  • US ISM reflects sluggish US activity
Thursday was a good day for the Pound. UK manufacturing data was much stronger than anticipated in August; rising at the fastest pace on record to a 10 month high after the dip in July. Is it too early to postulate that the UK seems to have shrugged off the fear of the impending Brexit? Much of the rise in manufacturing confidence is attributable to the weaker Pound creating an upturn in new export orders but, ironically, the good data strengthened the Pound by a cent against the Euro and US Dollar, adding to the exporters’ plight. If today’s construction sector PMI is similarly strong, we should see the Pound end the week with a real spring in its step.
 
By way of contrast, the US ISM index of manufacturing showed a drop in activity in August to below the 50 index reading. That signifies expected contraction and that really does start to kybosh the Fed’s plans for higher interest rates. Perhaps our forecast of a rise in the early part of 2017 is starting to look likely. We get the US factory orders data today and the initial forecasts are quite upbeat. I wonder if we will see a disappointed market at 14:00 GMT. Before that though, we will get August employment report from the US. Another fall in the pace of job creation is expected but the unemployment rate may well come down by a basis point or so. If I were unemployed in America, I’d be retraining as a bricklayer. That wall won’t build itself will it.
 
Those, in a nutshell, are the big headlines today. Next week brings some important data and announcements. Monday is Labour Day in America, so it will be impossible to book trades for same day settlement on Monday. So many currencies are linked to the US Dollar or settled through the Dollar that a US holiday stops financial flows. That also means the markets are quite illiquid, so volatility is a greater threat or opportunity dependent on whether you are a half empty or half full kind of person.
 
The Reserve Bank of Australia will undoubtedly leave their base rate on hold on Tuesday but the accompanying statement will be scrutinised for hints of further rate cuts. Tuesday will also bring the last figure for Eurozone economic growth in the second quarter of the year. A q/q 0.3% is the most likely outcome. The European Central Bank will be in action on Thursday but their interest rate is at 0% anyway, so no change is expected. We’ll watch their statement with interest (pun intended).
 
The Bank of Canada will be making its rate announcement on Wednesday but no change is expected there. Canada’s employment data will come out next Friday and a rise in the numbers out of work is expected.
 
And Friday 9th will bring UK consumer inflation expectations, which, with the recent fall in the value of the Pound, may well tick up a little.
 
Meanwhile, have a great weekend and I’ll leave you with this story of ingenuity. A couple stayed at a guest house on a farm in Iceland and wanted to write a thank you letter but couldn’t remember the address. So they put a map on the envelope with some helpful notes to the post man including Country; Iceland, City: Buoardalur. Name: A horse farm with an Icelandic/Danish couple with 3 kids and a lot of sheep. The letter made it to the recipient. That’s amazing but how is it that DHL could not find me at work in the daytime with a full address and postcode and my phone number to deliver my Amazon parcel? We need some Icelandic delivery drivers in London.
 

Thought for the day

 
Can we have a minute’s silence please for all of those who are stuck in traffic trying to get to a gym to ride stationary bikes and run on treadmills.

 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction PMI 45.9 49.2
EUR 10:00 EUR: PPI m/m 0.7% 0.1%
CAD 13:30 Canada: Trade balance -3.6b -3.2b
CAD 13:30 Canada: Labor productivity q/q 0.4% 0.2%
USD 13:30 US: Average hourly earnings m/m 0.3% 0.2%
USD 13:30 US: Non-farm employment change 255k 180k
USD 13:30 US: Unemployment rate 4.9% 4.8%
USD 13:30 US: Trade balance -44.5b -43.0b
USD 15:00 US: Factory orders m/m -1.5% 2.1%

FX Research by David Johnson

Daily Currency Analysis with Zeta Webber



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