Morning Report: 5 September 2017

5th September 2017 By: Ranko Berich

GBP The pound remains slightly upbeat despite poor construction Purchasing Mangers’ Index (PMI) data yesterday. PMIs are forward looking survey datasets, which incorporate business expectations and orders in the sector. According to yesterday’s data, conditions remained lacklustre in the sector in August, especially within commercial development, which fell at the fastest pace since July 2016. Looking ahead, it appears that construction businesses are preparing for a soft autumn as business confidence in general remains weak. Services PMI data will be released today at 09.30 BST, a further deterioration from previous months could see sterling resuming its downward trend.

EUR The single currency is falling against all G10 currencies at the time of writing as the Eurozone’s Purchasing Mangers’ Index (PMI) showed the lowest reading since January 2017. Revised Gross Domestic Product data will be released later at 10.00 BST, although investors are probably focused on this week’s ECB meeting on Thursday, which could reduce the impact of the releases today. Also, the German election looms on the horizon for markets. Despite the high likelihood of a Merkel victory, recent history has shown us to never remain complacent on such political events.

USD The dollar is mixed this morning after weakening on Monday against most of the G10, following a rally in safe-haven assets. Several Federal Reserve officials are due to speak over the week, and will be on the spotlight after last week’s weak jobs report, as the case for a final rate hike this year continues to lose traction. Of all the speakers this week, we believe the most important one will be from Lael Brainard, who speaks today at 13.00 BST. Factory orders data will be released at 15.00.

CAD The loonie refuses to give away its gains from last Friday against the US dollar, and it is currently maintaining its current momentum, at least, until tomorrow’s Bank of Canada rate decision. Expectations are high for the Central Bank to either hike interest rates again or make a solid case to increase rates again soon. No data is released ahead of the decision, hence we expect the CAD to remain upbeat until the event, which takes place tomorrow at 15.00 BST.

UK news

  • Guardian: UK ‘does not have capacity to strike new trade deals after Brexit’. Senior government figures have said that the UK does not have the capacity to renegotiate dozens of trade deals that already exist between the EU and third countries. Instead, they are planning to draw up copycat deals to those that already exist, in an attempt to replicate an agreement struck by Theresa May in Japan last week. May and the Japanese prime minister, Shinzo Abe, signed a joint statement that committed their countries to working towards an economic partnership agreement (EPA) as an “immediate priority”. The statement said: “As the UK exits the EU we will work quickly to establish a new economic partnership between Japan and the UK based on the final terms of the EPA.”
  • Reuters: UK economy losing momentum as Brexit worries weigh – PMIs. Britain’s economy is losing momentum as worries about Brexit mount, according to a survey which showed growth in the country’s dominant services sector in August was at its weakest in nearly a year. The IHS Markit/CIPS services Purchasing Managers’ Index fell to 53.2 in August from 53.8 in July and below the median forecast of 53.5 in a Reuters poll of economists. It was the lowest reading since September last year, shortly after the referendum decision to leave the European Union. The services slowdown is likely to add to the case for continued record low interest rates from the Bank of England whose policymakers meet next week, IHS Markit economist Chris Williamson said.