05 Oct 2017

Market Brief: Theresa's May-d her bed

Shaun Garrett

Dealing team

Yesterday’s UK services PMI data witnessed a better than expected reading, with the index rising to 53.6 from 53.2, beating the market expectations of a steady figure (Investec 53.7).

Today's data release
  Key levels
12:30 EZ ECB publishes account of its monetary policy meeting   Support Resistance
15:00
US Fed's Harker speaks, factory/durable goods/cap goods data GBP/USD 1.3163 1.3378
17:00 UK BoE's McCafferty speaks
GBP/EUR 1.1258 1.1434
18:30 UK BoE's chief economist Haldane speaks    
Market overview

On the positive side, survey responses noted continued health in the labour market and supportive economic fundamentals. However, the survey details did include a number of gloomier points, new business activity eased to a 13 month low and Brexit uncertainty was reportedly delaying decisions on large projects. Businesses were also reporting that optimism around their year ahead growth prospects were weakening. One final point, which echoed the manufacturing PMI published yesterday, was the rise in price pressures. Service sector firms reported input prices rising to a 7 month high, linked to higher operating costs in relation to food, energy, imported items, but also ‘greater staff salaries’. Yesterday’s data release is likely to further reinforce market expectations of a November BoE increase in interest rates.

The afternoon painted a different story as Theresa May suffered a nightmare at the Conservative party conference ending it with an accident strewn speech. It was overshadowed by coughing fits, being handed a P45 by a prankster and a faulty backdrop. Odds on Theresa May being replaced have narrowed, not helped by a number of newspapers claiming her future is ‘hanging in the balance’ and that May is ‘on final warning after speech shambles.’ During the Asian session traders were cautious on the Pound, waiting to see whether there would be any positive spin on the speech. In short there hasn’t been, rumours are circulating that 30 names are on a list asking the PM to quit immediately. The $1.3100 handle could beckon for GBP before too long.

Across the Pond, ADP employment data came exactly in line with expectations at 135k, this is lowest reading since October 2016. Markets were unfazed by this reading as the low figure was anticipated due recent hurricanes Harvey and Irma impacting September hiring trends. Shortly after the US Service sector registered its highest reading since August 2005 in the form of the non-manufacturing ISM. The non-manufacturing sector recorded strong growth in the month of September, despite the impact from the recent hurricanes. 

The day ahead

The ECB account of September’s Governing Council meeting are released today, early summer expectations were for a QE taper decision in September, but nothing showed-up at the September rate decision. However President Draghi did provide a steer that a decision could be made in October. Today’s release of meeting minutes from the September decision may shed some light on just how firmly the ECB may be leaning towards actually doing something. At 3pm the US releases factory and final durable goods orders data for August – for the latter an unrevised 1.7% figure is expected. In the UK two BoE members speak later today, McCafferty and Haldane. One an arch hawk and the other a recent hawk - markets will be following this closely for signals on whether the UK will raise rates in 2017. 

Thought of the day

On this day 70 years ago, President Harry Truman made the first-ever televised presidential address from the White House, asking Americans to cut back on their use of grain in order to help starving Europeans. At the time of his speech, Europe was still recovering from World War II and suffering from famine. In today’s world, televised speeches by senior officials are very common; in fact we had one very close to home yesterday from our Prime Minister. Aside from coughing, PM May’s speech focused on domestic policies as opposed to the arguably more pressing subject of Brexit. Her speech was described as disastrous and reports are now suggesting that a number of her Conservative colleagues are looking to oust her. PM May’s current concerns may not be as severe as a World War and famine but they could very possibly be just as stressful and painful for her to deal with. Will Theresa May be replaced? If Yes, by who and how soon? What will the impact be on the Brexit negotiations and Sterling? More and more uncertainties could be on the way. If you are concerned about your FX exposure in light of these uncertainties then call the Investec FX team today to discuss your possible hedging solutions.

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