Market Brief: Markets nervous ahead of Thursday's ECB

GBPEUR and GBPUSD traded in relatively tight ranges in what was an uneventful trading session yesterday, as markets remain braced for the ECB on Thursday. That said, the Euro did weaken as investors waited for the next big development in Spain, where Catalan separatists are planning their response after PM Rajoy stamped his authority on the region by invoking Article 155.Closer to home, we learnt from the CBI yesterday that the total order books among UK manufacturing firms (in the CBI Industrial Trends Survey) reached an 11-month low in the three months to October. This reflected a slowdown in both domestic and export growth. Delving further into the detail, 14 of the 17 manufacturing output sub-sectors registered a deterioration in output relative to the previous quarter, with a particularly sharp slowdown in production among the food and drink sector.

With regards the latest on Brexit, EU chief Jean-Claude Juncker distanced himself from reports that suggested Theresa May begged for his help at last week’s EC meeting. In parliament yesterday, Theresa May tried to put a positive spin on things saying she was confident talks could move on to a trade deal by the end of the year. She also highlighted that progress has been made on EU citizens’ rights, saying ‘we are in touching distance of a deal’ on EU citizens. Furthermore she said that there would be no physical infrastructure on the border with Northern Ireland.With the next BoE policy on the 2nd of November looming, BOE Deputy Governor Jon Cunliffe's interview in Wales yesterday was closely watched. He said that ‘rates will not need to go up by as far and as fast as they did before the crisis, but over the forecast period of three years rates will need to rise.’ He acknowledged that the UK economy has ‘clearly slowed this year’ and said that the lack of investment in the years after the financial crisis are starting to have an impact on productivity now. Overall his comments did little to help the Pound with his neutral to dovish interview. Worth noting that the market is currently pricing in an 81% chance of a rate hike a the November 2nd meeting.In other news Shinzo Abe’s election victory sent the Nikkei to the longest winning streak on record and the Yen to its weakest level since July. 

The day ahead

Looking at the day ahead, Prime Minister May’s cabinet will meet today as pressure mounts for it to agree the kind of trade pact Britain wants from the European Union. At 11.30am Chancellor Hammond will be answering questions in parliament. In Europe and the US today is all about PMI’s today with Manufacturing, Services and Composite PMI’s out in Europe at 09.00am and released Stateside at 14.45. The major events of the week (ECB on Thurs, UK GDP on Weds and US GDP on Fri) are still to come, however worth also noting that tomorrow we have the Bank of Canada rate announcement too. The BoC is expected to keep rates unchanged after September’s unexpected hike that raised the benchmark rate to 1.00%.

Thought of the day

Last night Cristiano Ronaldo was named the world’s best male player at the 2017 Best Fifa Football awards in London. A version of the Ballon d’Or has been awarded by France Football magazine since 1956, the world football governing body has ended its association with that honour. Instead, it introduced the Best Fifa Football Awards, with Ronaldo the first recipient of its main prize in January. At the moment in the UK, the Bank of England maintain the control around setting UK interest rates since given the control by Gordon Brown in 1997. Mark Carney and the MPC have come under pressure in recent months with Monetary Policy being cited as ineffective. Next week’s potential rate hike is hanging in the balance according to some commentators, so if you would like to discuss the latest and what it might mean for exchange rates please call the Investec Dealing Desk on 0800 055 6339.