Today’s macro highlights:
UK PMI data impresses again, nudging GBP/USD higher
We saw little overall direction on the major crosses yesterday, despite the release of some key economic announcements. The US ADP payrolls survey fell short of expectations, the Federal Reserve’s latest monetary policy meeting minutes showed growing concern over the negative effects a trade war would have on the economy and Mark Carney’s comments in Newcastle over the economy did little to detract from the idea a rate hike may well be seen next month. Regardless, the Euro closed a little higher and the Pound a shade lower against the dollar, as if the market was waiting for some altogether more meaningful news.
That could well be seen in the shape of today’s talks amongst UK government ministers over Brexit. Time is running out to find an acceptable proposal to table with the remainder of the EU, but media reports this morning suggest that Theresa May’s latest thoughts on the matter will not go down well with Brexiteers. Once again this is raising the stakes over the potential that we will see a full-blown leadership challenge that could potentially lead to calls for a general election. This overhanging threat has been weighing on the pound for some time and escalation of the idea would erode value further.
US non-farm payroll data due at 1.30pm BST will be under scrutiny after that drop in the ADP reading yesterday. The risk here is that the effects of a trade war and the prospect of a slowing US economy start to impact job creation. The non-farms figure always comes with some degree of surprise, so perhaps the unemployment rate is worthy of a little more focus. This has been at 3.8% in recent months, reflecting only frictional unemployment - what’s recorded as people move between jobs or during the transition between work and education. Any move higher here would see the market refocus on the contents of yesterday’s FOMC meeting minutes - and potentially leave the dollar under pressure, too.
It’s a relatively quiet day ahead in terms of data from Europe, although German industrial production figures for May have just been published. There came in significantly better than expected, although previous months were revised lower and the print is seen as a relatively low key one. It does however add to that theme that the Eurozone economy is managing - at least for now.
Modest losses during yesterday’s session, despite those encouraging comments from Mark Carney over the prospect of an August rate hike. This adds weight to the idea that short term political risk is the biggest issue for Sterling. Until we see more clarity here, this is likely to remain front of mind and keep the pound on the back foot.
The pair nudged a little higher during yesterday’s session, extending the upward trend that has been in play since late last month. Any wavering over the outlook for the US economy could see these gains extended in the short term.
Yesterday’s losses eroded all of Wednesday’s gains for the pair, with the market still very much focused on political risk. As such, the outcome from today’s UK government talks will likely be instrumental in what happens next.
Did you know…
Four years ago ahead of the World Cup in Brazil, Goldman Sachs produced an eye-opening study. It showed that the stock market of the winning nation would historically outperform global equity markets by 3.5% in the month following the tournament. Runners up however saw their market fall 5.6% in the three months after the event. With England through to the quarter finals on Saturday and a sunny weekend ahead, it seems inevitable that regardless of how the national team does from here on in, at least the UK’s retail sales figure for July will be cheered on. Progress isn’t entirely positive for the economy however - the victory over Colombia on Tuesday was reported to have cost the UK as much as £500m in lost productivity on Wednesday morning.