Let’s review the key events from last week’s busy calendar. In the UK, the Bank of England (BoE) raised rates by 25bp to 0.50% but the move was delivered with a dovish statement which caused expectations of future rate rises to be revised down; as a result sterling fell back, reversing recent moves. UK Manufacturing and Services PMI numbers both came in better than expected but did very little for the Pound. Over in the US, President Trump gave Jay Powell the nod, ahead of Janet Yellen and the more hawkish candidate John Taylor, as the President’s pick for next Chair of the Federal Reserve. Mr Powell is seen as the ‘continuity candidate' as he is already on the FOMC and as such he is seen as ‘dovish' in contrast to John Taylor; his nomination helped Treasury yields fall back during the course of the week. ISM data posted a soft manufacturing figure but a strong non-manufacturing figure outweighed that. And Friday's labour market data saw a strong rebound (although lower than the consensus) after the hurricane-affected data last month. US wage growth figures were also seen falling back, with the return of lower paid workers to the data, post-hurricane, a likely reason. Wednesday’s FOMC statement showed the Fed still on track to act with a rate hike in December.

Turning to Catalonia, on Friday, a Spanish judge issued an arrest warrant for ousted Catalan President Puigdemont and four others currently living in Belgium. Then on Sunday, Puigdemont voluntarily turned himself in to Belgium police although he has since been granted provisional release. Other weekend headlines were reported from Japan. President Trump, visiting Japan, told a group of business leaders that “for the last many decades, Japan has been winning (on trade). Our trade with Japan is not fair and it isn’t open”, and that Japanese car makers should “try building your cars in the US instead of shipping them over”. Elsewhere, he reiterated that his decision to withdraw from the Trans-pacific partnership free trade agreement will be “ultimately proven right”, and that he sees easing trade restrictions in other ways, although he did not elaborate.

The day ahead

Looking at today’s calendar and the week ahead, we have a quieter calendar. Today we will see the remaining October PMIs in the Euro area and we will also hear from the NY Fed’s Potter and the Fed’s Dudley. Other notable events from this week include a forum on Banking Supervision held by the ECB on Tuesday, which will include a speech from President Draghi. On Thursday, Brexit talks are due to resume between Barnier and Davis. President Trump is on an Asian tour this week so we expect to wake up to various headlines. 

Thought of the day

Imagine doing the gardening, then all of a sudden finding your life flashing right before your very eyes when you think you’ve stumbled across an unexploded World War Two bomb – only for it to be in fact a humongous courgette. Incredibly this is what happened to an 81 year old German at his home in Bretten and he promptly phoned the police. On arrival officers discovered a whopping 5kg courgette, but did say it looked very much like a bomb! Many in the market were surprised when GBP fell following the Bank of England’s first rate rise for ten years last week. Is this also a case of misreading the situation? If you would like to discuss what last week’s rate rise means for the Pound’s prospects please call the Investec Dealing Desk on 0800 055 6339.