Morning Report: 9 October 2017

9th October 2017 By: Ranko Berich

GBP Sterling extended its losses last week against both EUR and USD, amid political turmoil for the government and poor fundamental data that pointed towards a slowing economy. This week is rather sparse in terms of fundamental data, but Tuesday will see the release of several high frequency “hard data” indicators from the Office for National Statistics, including Industrial Output, Construction Output, and the Goods Trade Balance. Also out on Tuesday will be the Office for Budgetary Responsibility’s assessment of the Treasury’s revenues. Reporting from the Financial Times indicates that a substantial reduction in revenues is expected to reduce the Treasury’s budgetary “headroom”.

EUR EURUSD made a couple of fresh two month lows last week, but showed signs of losing momentum on Friday. This week’s data calendar is somewhat sparse, but this morning at 09:30 BST Sentix Investor Confidence figures will be released. The Eurogroup of finance ministers will meet today and tomorrow, creating the potential for political headlines. The week’s other major events will be an appearance by European Central Bank President Mario Draghi on a panel discussion of monetary policy on Thursday, and German Inflation data on Friday.

USD Last Friday’s labour market data was left nobody indifferent. The contraction in headline job creation contracted surprised markets somewhat. Although a significant slowdown was expected, few economists forecasted that employment would snap a 72-month streak of growth. However, wage growth was the most important figure of the day, skyrocketing above all estimates to 2.9% year-on-year, the highest it has been since 2009. The increase in wage growth should be very welcome by the Fed, as it could signal the end of a persistent, and contradictory macroeconomic relationship over recent years between low unemployment levels yet muted levels of wage growth. Financial markets are closed today in observance of Columbus Day.

CAD Although CAD trades higher against the dollar today compared to Friday’s close, the upward trend in USDCAD remains intact and further development will be needed to reject it. Friday’s unemployment rate remained at last month’s 8-year lows, against expectations of a marginal increase. Financial markets are closed today in observance of Thanksgiving day.

UK news

  • FT: Brexit ball is in the EU’s court, May to tell MPs. Bank chief warns of 6-month deadline for bargain but minister says no deal considered. Theresa May is expected on Monday to tell other EU countries that the “ball is in their court” in the Brexit negotiations, as she pushes to make progress in talks that have been deadlocked. Mrs May will challenge the other 27 EU members in a statement to the House of Commons just as UK and EU negotiators in Brussels are scheduled to begin a fifth round of negotiations over the terms of the UK’s departure from the bloc. Business has become particularly frustrated by the slow pace of discussions to agree a post-Brexit relationship. But Sir Howard Davies, chairman of RBS, warned that the government had only six months to secure a transition deal. If there was no deal by March, companies, including RBS, would start to move jobs to other parts of the EU, Sir Howard told Sky News. “If there are no details by the first quarter of next year, the number of moves of people out of London will accelerate,” he said.
  • Reuters: Weakened May to give bullish Brexit prognosis but say ball is in EU’s court. Prime Minister Theresa May, weakened by a disastrous party conference, will give British lawmakers a bullish prognosis for negotiations over exit from the European Union on Monday, but tell them that it is up to Brussels to make the next move. May has seen her authority erode since calling and then bungling an election in June, which cost her Conservatives their majority in parliament. At her party’s conference last week, her final speech was marred by a coughing fit and letters falling off the slogan on the set behind her. A former chairman of the party announced that a group of Conservative lawmakers was trying to topple her.