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Tory tests

Brexit related news will remain all-consuming in the UK next week and should maintain its status as the primary driver of the pound. But one change will be a glance away from Brussels and other EU players towards the domestic agenda.


Specifically the Conservative Party conference takes place in Birmingham between Sunday and Wednesday with the PM taking to the stage on the final day. While events could hardly get any worse for Mrs May than they did last year, she will keep an ear to the ground on proceedings at unofficial or ‘fringe’ meetings at the periphery of the conference.


In particular, reports suggest that former Foreign Secretary and leadership hopeful Boris Johnson is speaking at an event on Tuesday evening. The ‘Chuck Chequers’ campaign within the Tory party should receive considerable airtime next week.


We are well aware that striking a deal with the EU may be relatively easy, at least compared with getting a bill through Westminster. The PM faces a number of potential rebels on the right of her party on her Chequers proposal, but also dissidents to the left who may judge that a Canada style free trade agreement leaves the UK in a too distant relationship with the EU. Hence surviving next week with credibility intact within her own party will be critical in the Brexit dynamics to come.


Economic indicators

The most important economic indicators will probably be the PMIs – manufacturing is published on Monday, services on Wednesday. We note too that a number of MPC speakers take to the stage next week including Silvana Tenreyro, Andy Haldane and Jonathan Haskel.


US interest rates

After its move earlier this week, the FOMC has now raised rates at eight straight ‘press conference meetings’. The issue now is to assess whether and when the Fed will pause, perhaps next year, or if it follows its ‘dot plot’, where the Fed funds target range would reach 3.25%-3.50% by end-2020, from 2.00%-2.25% now.


US jobless rate

In this respect, markets will be on closer lookout for clues from senior Fed officials and will watch for any signals from Fed Chair Powell who speaks to NABE on Tuesday.


A number of his FOMC colleagues are also out in force.

As ever, markets will be attuned to Friday’s jobs data, bearing in mind that this measure of pay growth hit a nine year high last month and that at 3.9%, the jobless rate is more than 0.5% below the Fed’s estimate of its equilibrium level. The ISM indices and the ADP payroll survey are also due next week.



The Euro area release calendar is relatively meagre, although after a drop of close to 5% over the past two months (12% for overseas orders), we will be interested to see the extent of any rebound in German new manufacturing orders. The recent weakness does appear to be related to car specific reasons and not jitters over global trade. Final PMI data for August are also scheduled for Monday and Wednesday.


China indices

Elsewhere China enjoys its week long National Day holiday. However the official PMI indices are expected over the weekend, with the main point of interest the health, or otherwise, of manufacturing export orders. Also, the Japanese Tankan survey is out first thing on Monday and the RBA’s decision early Tuesday. 

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Weekly key indicators

UK manufacturing PMI (Sep)

09:30 Monday 1 October


Overall Index52.552.8


August’s UK manufacturing PMI fell a full point to a two-year low of 52.8, from 53.8 in July. Manufacturers reported that both output and new orders had slowed on the back of the first contraction in exports since April 2016. Respondents linked this to a combination of weaker global growth and uncertainty over the trading environment, leading firms to hold back on hiring such that job creation slowed to ‘near stagnation’.


We doubt that this story will change materially in the month of September. For one, US President Donald Trump followed through with a threat to impose tariffs on a further $200bn of Chinese imports. This has served to fuel fears over growing protectionism, which the authors of the ‘flash’ Eurozone manufacturing PMI offered as one reason why export order growth had stagnated in the bloc for the first time since June 2013.


However we note that factory activity metrics across the Channel, particularly in Germany, are likely being dragged down amidst a hit to the car industry from changes in emission standards. We contemplate the extent to which this factor is weighing on UK manufacturing figures too and suspect that domestic conditions will have suffered somewhat. Accordingly, we expect the UK manufacturing PMI will fall further to 52.5 in September.

George Brown

UK household lending (Aug)

09:30 Monday 1 October


Mortgage lending+£3.6bn+£3.2bn
Mortgage approvals
Consumer credit+£1.3bn+£0.8bn


Bank of England household lending figures showed that the number of mortgages approved for house purchase softened from 65.4k in June to 64.8k in July, but the big picture is one which approvals have been pretty range bound for a few months now (between 64.5k and 65.4k). The UK Finance (UKF) mortgage approval figures for August did little to suggest a clear break out of range is afoot; UKF’s approvals number edged down to 39.4k from 39.6k. As such we are pencilling in only a modest softening in the Bank of England approvals reading, to 64.6k.


Net mortgage lending dropped to +£3.2bn in July from +£3.9bn in June. Our suspicion is that we will see something of a recovery this time around, given that the mortgage approvals pipeline has been relatively steady. We are pencilling in +£3.6bn.


Notably, on the consumer front we saw a sharp drop in net consumer credit to +£0.8bn from +£1.5bn, bringing the year-on-year rise to 8.5%, the slowest since rate since November 2015. Our hunch is that this was probably a temporary blip. Indeed, we are not seeing evidence that households are battening down the hatches and looking to rein in spending, and with it borrowing, as we move closer to the Brexit date. We are pencilling in +£1.3bn in August.

Victoria Clarke

UK services PMI (Sep)

09:30 Wednesday 3 October


Overall Index54.554.3


The UK services PMI rose from 53.5 to 54.3 in August. Incoming new work picked up slightly on the month, but anecdotes suggested that Brexit uncertainty continued to weigh on demand and led to business optimism easing to a five-month low. While employment growth was the highest since February, there remained continued reports of widespread recruitment difficulties which in-turn put further upward pressure on pay awards.


Brexit-related sentiment improved this month in the lead up to the EU leaders’ summit in Salzberg (September 19-20), which saw cable gain as much as 5% from its mid-August lows. Underpinning this was the EU’s chief negotiator Michel Barnier sounding more confident that a deal could be reached with the UK. While the tone of the summit itself was rather gloomier, the vast majority of survey responses are typically received early in the month (i.e. in this case, before the summit) and would not therefore reflect this.


As such, this may have helped to lift some of the uncertainty that has been weighing on demand, albeit not completely. We therefore look for a marginal 0.2pt improvement in the PMI to 54.5 for September. 

George Brown

US employment situation report (Sep)

13:30 Friday 5 October


Change in non-farm payrolls+165,000+201,000
Mortgage approvals
Consumer credit +£0.4% (+2.9% yoy)


The upcoming September non-farm payroll report is likely to see some dampening effect on job gains from Hurricane Florence, which hit the US during the survey period for the report.


However, we are doubtful that we will see a very sharp drop in job gains as we did in September 2017 in the wake of Hurricane Harvey, Irma and Maria. One reason is that whilst Hurricane Florence spanned a large area, its impact on large cities was much less. Harvey hit Houston severely, for which non-farm payroll employment amounted to circa 3 million in 2017.


With the cities affected (Wilmington NC, Lumberton NC, New Bern NC etc.) this time much less populous, we are betting that the impact this time around will not be nearly as severe as in the wake of Harvey.


Our best guess is that we will see a 20k dip on the recent trend rate in nonfarm payrolls, such that the non-farm payroll print is seen at 165k. That compares against September 2017 (Harvey, Irma, Maria) which came in 202k below the prior 3m average in the most recent vintage of data.


For the unemployment rate, we suspect that hurricane disruption is even less of an issue, given that people who miss work for weather related reasons are counted as employed, whether they are paid for the time off or not. We expected to see a steady 3.9% rate.


Pay growth rose to 2.9% in August, a rate not seen since 2009. Note that this time around, we could potentially see some easing back from this, given the step-up in pay growth in last September (amidst the Hurricane which tends to knock out lower paid workers) is unlikely to be repeated this time around. 

Victoria Clarke