23 Oct 2017
Market Brief: UK borrowing figures help the pound
Last week ended with the pound on the front foot, as the UK public sector net borrowing figures for September showed the headline borrowing measure had come in below market expectations at £5.9bn.
|Today's data releases
|11:00||UK CBI business optimism, CBI trends total orders||Support||Resistance|
|13:30||UK Chicago Fed national activity index||GBP/USD||1.3088||1.3338|
|15:00||EU consumer confidence||GBP/EUR||1.1071||1.1300|
Last week ended with the pound on the front foot, as the UK public sector net borrowing figures for September showed the headline borrowing measure had come in below market expectations at £5.9bn. Consensus had been for a £6.5bn reading and our own economists forecast for £5.4bn. That marked the lowest deficit for any September since 2007.
The pound was further helped by some news from the EU summit which has some positive outcomes for Brexit. Before the start of the summit, Merkel and Macron seemingly going out of their way to be filmed making "animated conversation" with May, in contrast to previous summits where the UK PM has been seen to be largely shunned by her European peers. Further vocal support came from Merkel, who dismissed Fleet Street’s gloomy portrayal of the divorce talks in the British press and said that “my impression is that these talks are moving forward step by step”. The German leader was also dismissive of suggestions from some euro sceptics who have called for the talks should be broken off as "absurd", countering that she had no doubts “we are all focused ... that we can get a good result."
In the US, tax reform has been given a boost after a vote on a budget resolution passed the Senate, with lawmakers voting 51-49 in favour of the proposal. The vote passing is seen as a key stepping stone in the US administration advancing its tax reform proposals because it provides the fiscal headroom to push the tax reform proposal through and paves the way for these to be passed with a simple majority in the Senate.
Following a meeting of Spain’s Cabinet at the weekend, Spanish PM Mariano Rajoy has moved ahead with the use of Article 155 of Spain’s constitution, suspending Catalonia’s semi-autonomous status. Indeed the Spanish PM has announced that he plans to sack the Catalan government and hold regional elections within 6 months, seeking to put an end to Catalonia’s push for independence. Mr Rajoy’s proposed measures do however still need to go for approval by Spain’s upper house, its Senate, although Rajoy’s centre-right party holds a majority there. The Catalan separatists are expect to meet this morning to construct their response to Rajoy with Party leaders scheduled to meet at 10.30am local time.
The Japanese parliamentary elections held yesterday delivered a decisive result with Shinzo Abe’s Liberal Democratic party-led coalition securing a two-thirds parliamentary ‘super majority’. The result is seen paving the way for Abe to press ahead further with his ‘Abenomics’, with additional fiscal stimulus expected, whilst he is also likely to focus on constitutional reform too. The result has given further impetus to Japanese stocks, with the Nikkei 225 recording a 1.1% rise; its 15th straight gain.
The day ahead
Turning to the week ahead, on the UK data front, we expect Wednesday’s (25 October) preliminary Q3 GDP figure to be recorded at +0.3%. Our economists do not think this will scupper the Bank of England’s plans for a rate hike on 2 November. At the end of the week, ratings agencies Standard & Poor’s and Fitch are set to issue a review of the UK’s sovereign credit rating, with the former having recently voiced concern that the economy is not strong enough to stomach a rate hike. In Europe, we have the ECB Governing Council meeting on Thursday. This is an important meeting given that the central bank has hinted that it will ‘recalibrate’ its QE programme. We expect policymakers to announce an extension to its asset purchase programme beyond December. But we anticipate that it will halve its monthly asset purchase pace to €30bn per month from the current €60bn pace, running at that reduced rate through to September 2018. Investors will also be on the lookout for any changes to key phrases in the ECB’s policy statement. Stateside, we have a raft of data releases including the ‘flash’ PMIs for October. However the most closely watched release is likely to be the advance estimate of third quarter US GDP due Friday lunchtime. The Q3 reading is likely be depressed somewhat by the impact of the recent hurricane season on segments of the industrial sector, with early expectations pointing to a 2.5% annualised growth pace. That would be down from the 3.1% Q2 reading.
Thought of the day
As many of you can imagine, Queen Elizabeth has an impressive property portfolio. The Crown Estate includes some incredibly grand and iconic holdings, such as The Savoy Hotel, Ascot Racecourse, Regent's Street and St James' Market and many castles. This majestic empire is unsurprisingly worth a pretty penny, with the Crown Estate announcing it returned a record £328.8 million to the Treasury in 2016. But it's not all stately piles, high-rent hotels and chi chi racecourses. The Queen also a proud owner of a branch of the fast-food chain, McDonald’s. The Banbury Gateway Shopping Park in Oxford is on land that forms part of the Crown Estate. And it's not just a Maccy D's it has to offer Her Maj. The shopping centre also has a Primark and an Ed's Easy Diner too. Property has been an attractive investment across the global for many years. The post-Brexit weakness in the Pound has made UK property market more attractive to foreign investors. According to a Reuters report in August, Chinese investment in London’s commercial property more than trebled since before Britain voted to leave the European Union. Closer to home, the British public have enjoyed very attractive mortgage rates due to the current low UK interest rates. The market is anticipating a 25bps rise in UK interest rates on 2nd Nov. The probability of this move currently sits at 80%. To ensure that you are all covered ahead of 2nd Nov, call the Investec FX team today on 0800 055 6339.