Sterling remains under pressure for the end of Q3

Yesterday’s markets

1st October 2015

  • German Retail Sales m/m: -0.4%
  • UK Current Account: -16.8B
  • UK Final GDP q/q: 0.7%
  • EUR CPI Flash Estimate y/y: -0.1%
  • EUR Core CPI Flash Estimate y/y: 0.9%
  • EUR Unemployment Rate: 11.0%
  • US ADP Non-Farm Employment Change: 200K
  • CAD GDP m/m: 0.3%
  • Fed Chair Yellen Speaks
  • CNY Manufacturing PMI: 49.8
  • CNY Caixin Final Manufacturing PMI: 47.2

Sterling remained firmly on the back foot as the quarter came to an end despite further positive readings. The UK's current account deficit narrowed much faster than expected in the second quarter of the year. This is impressive as the improvement took place despite the strengthening of the Pound by almost 6% in the first half of the year. The third estimate of growth in the second quarter was 0.7%, unchanged from the previous estimate. However, the annual growth figure for the second quarter was revised down from 2.6% to 2.4%.

Meanwhile, there were further signs that the ECB may need to extend the current QE program that is due to end in September 2016. Deflation returned to the region as September prices fell at an annual rate of 0.1%. It is the first time inflation had turned negative for six months, but it is no real surprise given the large fall in energy prices in the last year. Despite some growth and inflation in the first half of the year there are signs the recovery is losing its impetus. Fear of the slowdown in the Chinese economy could seriously damage the European economy, which in turn could also require a further injection of QE.

The US Dollar continued its advance as the ADP employment report stated companies stepped up hiring in September posting a better than expected figure of 200k. This is positive in the wake of weaker global demand. It also suggests that the all-important payrolls number on Friday will be better than expected. Should we see this, it will only strengthen the case for the FOMC to be raising interest rates before the end of 2016, which they have signposted in recent commentary.

Overnight, some key manufacturing and service sector numbers from China were released. The official Chinese manufacturing figures remained in contraction scrapping a better than expected 49.8 vs 49.7, whilst the Caixin reading (A.K.A the new HSBC) registered an atrocious 47.2, its lowest reading since March 2009. The two figures combined confirm that the economy remains in contraction as the world’s second largest economy’s biggest sector continues to struggle.

Today’s markets

30th September 2015

  • CHF Retail Sales y/y
  • Spanish Manufacturing PMI
  • UK Manufacturing PMI
  • US Unemployment Claims
  • US ISM Manufacturing PMI
  • FOMC Member Williams Speaks
  • AUD Retail Sales m/m

Looking to the rest of the day, there are key manufacturing numbers from across the globe. Manufacturing data from Germany, Europe, the UK and the US are set to hit the wires. Meanwhile, the US jobless claims will be monitored ahead of tomorrow’s US job data.