Morning Report: 5 October 2015

5th October 2015 By: Ranko Berich

GBP On a week on week basis sterling is precisely flat against USD, having weakened throughout the week up until Wednesday before posting a slight rally to leave GBPUSD close to where it was a week ago. Friday’s construction Purchasing Managers Index data from Markit showed the sector growing extremely quickly, but this was largely unnoticed by sterling. This will be a big week for GBP, which has a full data calendar that features the Bank of England’s latest “Super Thursday”, when the latest Monetary Policy Summary will be released alongside meeting minutes, and the official Bank Rate announcement. The BoE’s releases will be at 12:00 BST on Thursday. Today at 09:30 BST, Services Purchasing Managers Index data from Markit will be released.

EUR The euro briefly soared against both USD and GBP in the wake of Friday’s Non-Farm payrolls report in the US, before falling back somewhat and losing a significant chunk of its gains. Friday saw the release of disappointing Spanish labour market data, which saw Unemployment rise faster than expected, and the eurozone Producer Price Index, which showed a 0.8% month on month contraction in prices. Producer prices are a major leading inflation indicator, and after the eurozone fell back into deflation in September, the theme for euro trading will be how the European Central Bank will respond to this latest threat. This morning will see Markit release Services Purchasing Managers Indices for various European countries, culminating in the index for the eurozone as a whole at 09:00 BST. Sentix Investor Confidence will be released at 09:30, followed by monthly Retail Sales data at 10:00. The eurogroup forum for finance ministers will meet today, and discuss Greece’s ongoing reforms/debt relief programme.

USD Friday’s disappointing non-farm payrolls at first looked catastrophic for the US dollar, which weakened drastically against all of its major pairs. However, the greenback has since clawed back much of its losses and is now looking basically unchanged compared to a week ago against many G10 pairs. The actual non-farm payrolls figures were indeed very disappointing, and a potential game changer for monetary policy. Only 142,000 jobs were created in September, well below the 200,000 expected and actually lower than even the lowest estimate of economists surveyed by Bloomberg. The entire report was bad: labour participation declined, and Average Earnings were flat. The Federal Reserve’s outlook for monetary policy has hinged on an assumption that the labour market will continue to improve. Friday’s report was bad enough to challenge this assumption, meaning that the balance of opinion on the Fed’s Federal Open Markets committee may now be changing away from the prevailing consensus that rates are likely to rise in 2015. To round off the afternoon of bad news, Factory Orders fell 1.7% in August. This week’s biggest event is likely to be the release of minutes from the FOMC’s latest meeting, on Thursday at 19:00. Today. Services Purchasing Managers Indices will be released by Markit and ISM at 14:45 and 15:00 BST.

CAD The loonie was very much on the move last week, strengthening more than 2.5% versus USD. A broader rally in commodity currencies and risky assets in general helped CAD along. This week will see multiple CAD data releases, meaning the loonie could have an opportunity to solidify its recent gains, although risk appetite is exceptionally fickle at the moment and could reverse rapidly. Trade Balance data will be released tomorrow at 13:330 BST, followed on Friday by Labour Market data for September.

UK News

  • FT. George Osborne’s minimum wage plan comes under attack: George Osborne’s planned increase for the minimum wage is likely to see more job losses than the chancellor’s “hugely uncertain” 60,000 figure, the head of the Low Pay Commission has warned.
  • Reuters. Osborne promises to fund infrastructure: Chancellor George Osborne will launch a programme on Monday to spur infrastructure investment in Britain, poaching the policy from the Labour Party to stake the government’s claim to the centre ground.
  • Reuters. UK firms see least certain outlook in 2-1/2 years – Deloitte: Large British companies are more worried about the economic outlook than they have been for the past 2-1/2 years, because of the slowdown in emerging markets and the prospect of UK and U.S. interest rate rises, a survey shows.