The Pound declined sharply at the end of last week, partly due to former First Minister, Alex Salmond, predicting that the UK will see another Scottish referendum in 2018. Salmond’s reasoning is that Theresa May would not be flexible enough to come to an arrangement that will enable Scotland to stay in the UK and maintain its relationship with the EU single market. To add further instability to the Pound, on Friday the Central European EU members known as the Visegrad Four, threatened to veto any Brexit deal if it limits people’s right to work in the UK.
A very light day of data, with limited releases.
Early on Tuesday, the minutes from the Australian Reserve Bank meeting are published. The new governor, Philip Lowe, has reaffirmed the central bank's official 2-3 per cent inflation target, saying now is not the time for radical monetary policy experimentation. A raft of US housing data will be released, including the readings for month on month Building Permits and Housing Starts. The figure should give us as insight into consumer activity. This is due to new home acquisitions being associated with a rise in sales of “big ticket” durable goods. At the end of the UK trading day, the governor of Canada’s central bank, Poloz speaks. He is expected to highlight ongoing softness in exports despite a weak currency, which could suggest a downgrade to the bank’s economic growth, forecast at its rate announcement in October.
Markets will be focusing on whether the BOJ will reduce its main interest rate further into negative territory, which would be unpopular among commercial banks, or adjusts its easing program in other ways, perhaps by dropping its March 2018 target date for reaching 2% inflation.
The focus will then switch to the US, where the interest rate decision and statement will be closely scrutinised. The market is predicting a 1 in 5 chance of a rate hike, with Fed chair, Janet Yellen’s subsequent media conference expected to be somewhat dovish given the recent disappointing economic data.
The National Association of Realtors will release new data on Existing Home Sales, which dropped 3.2% in July as inventory remained tight and prices stayed high. Economists suggest that the sales figures partially rebounded in August, rising 1.7%. ECB President, Mario Draghi will be speaking in Frankfurt. He is due to speak at the European Systemic Risk Board. Whilst he isn’t expected to comment on present ECB policy directly, if he is drawn into comments, we can expect to see Euro movement.
Europe’s third-quarter growth picture will come into focus when IHS Markit releases its flash Eurozone composite purchasing managers index, an economic-activity gauge for September. The European Central Bank may take note if it shows a slowdown from the already weak second quarter. Forecasters are looking for a slight fall to 52.8 from August’s final reading of 52.9. This would mean the average figure for the third-quarter would be down from the previous three-month period reading.