15 Sep 2017
Market Brief: Super Thursdays
We’ve had many ‘Super Thursdays’ in the past. These, you recall, are special Thursdays when we have the BoE policy decision, MPC minutes and an accompanying Mark Carney press conference, all in one supposedly ‘Super’ day.
|Today's data release
|09:50||BoE's Vlieghe speaks||Support||Resistance|
|10:00||Trade balance, Labour costs||1.3336||1.3475|
|13:30||Empire manufacturing, retail sales||1.1014||1.1424|
|15:00||University of Michigan sentiment|
Yesterday was not meant to be ‘Super’ … whilst it was a Thursday and whilst a Bank of England policy decision was due, no accompanying ‘Mark Carney press conference’ was scheduled, so financial commentators decided to drop the prefix ‘Super’… Oh, how wrong they were!
After Sterling’s wobble midweek, yesterday proved to be one of the most exciting days in currency markets we’ve had for a while. It was certainly a ‘Super’ day for the Pound as it shrugged off the lacklustre UK wage growth data and jumped back on its high horse in a big way. GBPUSD went on to reach a new yearly high and all of those GBPEUR bears who a little more than a week ago, were suggesting that parity might be on the cards, were left scratching their heads.
Before we delve into the detail of yesterday’s festivities, let’s take a look back at the events of what has been a very interesting few days in currency markets. Last Friday the Pound made significant gains against the USD following the better than expected Manufacturing figures. After a quiet start to this week, Sterling certainly didn’t lose any ground after MPs voted in favour of the Great Repeal Bill in the early hours of Tuesday morning. The Pound continued to grind higher when UK CPI inflation ticked up to 2.9% from 2.6% the month previously and set a one-year high against the dollar and in so doing managed to claw back 50% of the losses it has made since the result of the EU referendum.
On Wednesday, despite the unemployment rate reaching a 42 year low at 4.3%, wage growth inflation come in at a mere 2.1% and with real wages in decline it naturally had a dampening effect on the Pound. This really set the stage for a fascinating run-up to the Thursday’s BoE policy announcement and when the Bank of England voted to leave interest rates unchanged at their current record low of 0.25% with the MPC vote coming in at 7-2, all in line with expectations, it may have proved to be a damp squib. But really the surprise came in the MPC minutes where it was said “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”. Indeed Governor Carney followed this up in an interview after which also paves the way for a possible hike on the 2nd of November. Our economists now think there is a material risk that the BoE might move in November, although as of yet they have not changed any of their central views. Regardless, the market has certainly reacted and there is now a greater than 50% chance being priced in for a rate hike in November.
In other news, North Korean provocations continued overnight, with North Korea firing a second missile over Northern Japan. This looks to be a direct response to the UN sanctions which were approved on Monday. However Far Eastern markets have failed to see any significant downward moves overnight. The RICS housing survey’s headline house price balance witnessed an unexpected rise in August to +6% from 1% in July and beating the market expectations of a small fall to zero. Also, the FTSE 100 dropped to a four-month low yesterday after the BoE as the stronger Pound weighed on the FTSE 100’s predominantly dollar-earning constituents. The FTSE ended the session 1.1 percent lower at 7,295.39 points and is currently trading a further 30 points lower.
The day ahead
Looking at the day ahead, we have a predominantly USD focused data calendar, with a raft of releases out at 13.30 including Empire Manufacturing, US Retail Sales, Industrial Production, University of Michigan Sentiment. At 09.50, the BoE’s Vlieghe speaks and needless to say he will be quizzed on yesterday’s MPC minutes indefinitely. Whilst our economists do not feel there will be any surprises, it will be interesting to see whether the Governor will put his money where his mouth is!
Thought of the day
Veganism is a hot topic at the moment and is certainly a subject of much debate in the Investec dealing team. A couple of colleagues have recently switched over and are extolling the virtues of their new diets (how strictly they are following it is another discussion!). The original philosophy of the movement was that “animals should not be exploited for food or any other purpose” rather the health focus that it now has. This formally niche diet now has taken off with a wider audience, including Jeremy Corbyn, who has recently spoken about the growing appeal. Rather like veganism, or in fact any diet, currency strategies can provoke debate, so if you would like to get involved in either a debate about diets or would like some thoughts on where the market is headed, call the Investec dealing team today!