Morning Report: 5 October 2017
5th October 2017 By: Ranko Berich
GBP Sterling saw some intraday volatility yesterday, but closed roughly flat against USD and EUR. The Services Purchasing Managers Index rose slightly to 53.6 in September, suggesting that the sector remains in steady growth, although the increase in new work orders slowed, and the figures also showed the fastest rate of price inflation since April. Elsewhere, Theresa May gave a speech to the Conservative Party conference, launching renewed policies on housing, economic opportunity, tuition fees and energy prices. However, the broadly progressive content of the speech and personal appeals about the “British dream” were utterly overshadowed by the descent of the speech’s delivery into slapstick comedy. The speech’s mishaps included (and this is not a complete list) uncontrolled coughing, slogan lettering falling off a wall on camera, being handed unemployment papers by a prankster and having a foreign minister being told to stand for an ovation. Today at 18:30 and 23:30 BST the Bank of England’s McCafferty and Haldane will speak, respectively.
EUR Euro trading was uneventful yesterday, as the media continued to focus on escalating constitutional tensions in Spain. Carles Puigdemont, the Catalan President, gave a speech criticising King Felipe VI’s appeals for unity on Tuesday, adding the Rajoy Government was “irresponsible” for not accepting mediation of the crisis. On Monday, Puigdemont is set to officially address the Catalan Parliament in order to “discuss the results” of the referendum. Puigdemont is widely expected to use the platform to follow through on its own legislative promise of a unilateral declaration of independence, which under Spanish constitutional law would constitute a rebellion. The Spanish Government does have emergency legal powers to take control of the Catalan legislature should this occur, and with senior members of the Catalan police facing charges of sedition- which carries a 15 year penalty in Spain- the situation remains extremely fragile. A crop of Services Purchasing Managers’ Indices were released yesterday, showing solid growth across the euro area, including Spain. However, monthly Retail Sales contracted 0.5% across the eurozone. Today at 12:30 BST the European Central Bank’s latest meeting minutes will be released.
USD The dollar trades lower against the euro, following yesterday’s trend, but it has strengthened significantly against sterling following negative political headlines in the UK. The future of the dollar continues to be coloured by speculation regarding the next Federal Reserve Chair, which is due to be nominated by President Donald Trump in the coming weeks. The incumbent Chair Janet Yellen, who’s speech yesterday avoided the topic of interest rate policy and thus had little market impact, is currently only third favourite to be in the position next year, behind fellow Fed member Jerome Powell, and the current favourite, Stanford fellow Kevin Warsh. Warsh is, in particular, seen as more hawkish than Yellen, and thus his appointment would likely give USD a medium term boost. That said, Powell is due to speak at 2.10pm GMT today, and so any comments he makes on monetary policy in either direction will trigger a knee-jerk reaction in the dollar. Elsewhere, in terms of economic data U.S. August factory orders could surprise to the upside today, given a strong preliminary print on the durables component, after good Service sector numbers yesterday afternoon. Initial jobless claims are also due, with other Fed speakers today including Patrick Harker, Kansas’s Esther George and San Francisco’s John Williams.
CAD The loonie has stabilised this week after another massive decrease in crude oil inventories in North America yesterday. Trade balance data will be released in Canada at 13.30 BST.
- FT. Catalan leader lashes out at Spanish king for taking Madrid line Carles Puigdemont vows to press ahead with declaration of independence. Carles Puigdemont, the Catalan president, has accused King Felipe VI of following the central government’s “catastrophic” policies towards the region, pledging to push ahead with a formal declaration of independence in the coming days. In a sign that the Spanish king’s intervention on Tuesday night did little to calm one of the most severe political crises since the country’s return to democracy in the 1970s, Mr Puigdemont lashed out at the monarch late on Wednesday and called the central government “irresponsible” for not accepting mediation in the political crisis. King Felipe took an uncompromising line in a rare address to the nation on Tuesday that mimicked that of hardliners in the ruling centre-right Popular party government. He accused the separatist Catalan government of flouting the law and seeking to “break the unity of Spain”.
- Reuters. May is not considering resigning after ruined speech, Sky says Prime Minister Theresa May is not considering resigning, Sky news reported on Thursday, citing her Downing Street office. “Downing Street: Resignation is not an issue,” Sky said on its screen. A spokesman for PM May did not comment on the report. A spokesman for the Conservative Party did not comment. May’s bid to reassert her dwindling authority was ruined on Wednesday when her keynote speech was interrupted by repeated coughing fits, a prankster, and even letters of her slogan falling off the set behind her.