23 Aug 2017

Market Brief: Mario Draghi to stir things up early?

Shaun Garrett

Dealing team

Tuesday morning began with UK public finance figures performing better than expected in July. The headline borrowing measure, the PSNBX, was recorded £0.2bn in surplus. Consensus had been for a £1.0bn deficit (Investec forecast +£0.2bn) whilst revisions to the June data were also positive (i.e. reduced earlier estimates of the deficit in that month).

Latest rates   Today's data release
GBP/USD GBP/EUR GBP/AUD GBP/AUD GBP/CHF 09:00 EU current account
1.2894 1.0973 1.6301 1.6302 1.2415 10:00 EU construction output
GBP/JPY GBP/HKD GBP/ZAR EUR/USD EUR/GBP 15:00 US Michigan sentiment
140.59 10.0882 17.0418 1.1748 0.9111
Investec currency forecasts as at 27 July 2017 Key levels
  Q3 '17 Q4 '17 Q1 '18 Q2 '18 Support Resistance
GBP/USD
1.29 1.30 1.30 1.31 1.2820 1.3030
GBP/EUR 1.13 1.14 1.13 1.13 1.0930 1.1020
market brief daily chart
Market overview

The better than expected figures were helped on their way by the lowest year over year rise in central government current spending since March whilst current receipts (excluding BoE asset purchase coupon flows) held up well enough too. Overall, a pretty decent reading, despite the soggy economic backdrop.

There was a risk-off feeling overnight with JPY higher as Donald Trump said he may end the North American Free Trade Agreement. He also threatened to shut down the US government if he is unable to get funds to build a wall along the Mexican border. Yesterday market sentiment had rebounded, perhaps in some ways linked to reports that the Trump administration may be finding common ground with lawmakers on how best to pursue tax reform.

Prime Minister Theresa May conceded that European Union law will influence the UK long after Brexit, in a bid to speed up talks. French President Emmanuel Macron has begun an EU tour aiming to curb cheap labour and reshape defence and border controls. Tuesday afternoon’s session saw weakness for the GBP as it continued its slump against the Euro. We currently sit on the 1.09 level with is an 8 year low for the currency pair.

The day and week ahead

Our last full week in August is gearing up to more exciting finish. Mario Draghi has been speaking in Lindau, Germany this morning, but has not said anything to move currencies. He did mention though that QE and forward guidance have been a success. It remains to be seen as to what the ECB chief will say at the Jackson Hole conference tomorrow, although the indications are that he will refrain from giving markets a policy steer. Eurozone PMIs released so far have been firm, especially the manufacturing survey from Germany, which hit a 2-month high of 59.4. Later we have more Eurozone PMIs and US PMIs after lunch. After 6pm tonight Federal Reserve’s Kaplan will be speaking.

Thought of the day

In a crime that’s really crossed the line, a gang of sweet-toothed thieves have made off with a truckload of chocolate. The trailer laden with 20 tonnes of chocolate included Kinder Surprise eggs, Valparaiso chocolate fruit pearls and Nutella spread, was stolen in the German town of Neustadt in Hesse. It's thought the thieves even went as far as bringing in a truck to haul away the cooler-trailer that was stocked with the goods. It's unclear the effect this huge loss of Nutella is worth, potentially 50,000 - 70,000 euros (approx. £46,700-£64,000). Nutella can claim on an insurance policy of its own for its loss of their chocolate gold. Investec customers who deal with gold can also hedge their own exposures in the event of unexpected market moves. If you would like to talk about your own commodity exposures in more detail please call the Investec Dealing Desk on 0800 055 6339.

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