11 Sep 2018

Market Brief: Poor UK data sets the tone

Lewis Thorn

Dealing team

The pound started off yesterday on the back foot following the release of poor data.  

Today's data release
  Key levels
09:10 EU Retail PMI
  Support Resistance
09:15 Brexit Secretary Davis speaks
GBP/USD 1.3240 1.3550
13:15 US ADP
GBP/EUR 1.1065
1.1420
15:00 Bank of Canada Interest Rate decision
     
Market overview

The pound started off yesterday on the back foot following the release of poor data. The ever important UK Services PMI fell well below expectations to 53.8, from October’s 55.6 (consensus 55.0, Investec 54.6). Survey compilers IHS/Markit identified ‘economic uncertainty’ and pressure on margins from rising costs as reasons for the decline. Indeed the ‘prices charged’ component rose by over 2 points to 56.4, its highest level since February 2008.

In terms of activity, it should be pointed out that the level of the index remains above where it was two months ago. Moreover, while this survey suggests that conditions in services have weakened, remember that last week’s equivalent manufacturing survey was buoyant and that Monday’s construction index increased, offsetting some of yesterday’s disappointing news.

The most noticeable headlines from the record of the November Financial Policy Committee meeting is that the committee considered raising the countercyclical capital buffer (CCB) by more than the announced 50bps. Back in June 2017, the BoE announced the CCB would rise to 0.50%, whilst at the same time signalled that the CCB would likely go up to 1% in November. November’s meeting confirmed the increase to 1%, but the record shows that the committee actively debated a bigger rise than had already been signalled, which suggests that there is scope for the CCB to be raised further in the new year. Indeed the FPC noted that they would review the adequacy of a 1% CCB over the first half of 2018.

The day ahead

With a slight pause in the data today before anticipation starts building up towards Friday’s non-farm payrolls markets are expecting to continue to pick between the headlines on the ongoing Brexit situation. With May no longer going to Brussels today to continue talks, you could take this as a negative and expect the pound to take a further hit. On the data front, we get a sneak preview of what could be in store on Friday when the ADP employment report is released at 1.15pm.

Thought of the day

With only 18 days left until Christmas and 25 days til 2018 makes its entrance, we all want to make sure we are on the front foot and ready to face whatever the year throws at us. Whether that’s setting New Year resolutions for yourself or making sure that your business is in the best position possible. To help with that we are hosting a conference with our Chief Economist Phil Shaw this morning at 10am who will be discussing the global economic landscape, key events happening next week and then looking forward to 2018. You can find more detail and register here. If you would like more information or you are unable to join but still like to gain some of the insights, get in touch with your Investec FX dealer here or call us on 0800 055 6339.

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