ACM Update 11-09-23
Hot weather but not a hot pound last week with GBP down against most other majors. There were a mix of different reasons for this, as well as continued Dollar momentum post the previous week’s better than expected Non-Farm Payrolls data. This pushed the Dollar to its strongest in three months versus the Pound and Euro.
From a UK perspective, Andrew Bailey and Co made an appearance at the BoE’s Monetary Policy Report Hearing. Usually a non-event, the main takeaway was that there is currently no determined course of action for the next MPC meeting. All options therefore remain open, including a pause which saw head GBP lower.
In terms of positives, the BRC (British Retail Consortium) figures showed almost double the forecast growth from last August to this one, of 4.3%. Both construction and services PMI numbers came in better than expected, with the latter just under 50. The pair were down on the previous month though.
Halifax’s house price index demonstrated the recent slowdown in the housing market further by recording a -1.9% drop from July to August. This is the fifth month without growth in a row, and the biggest monthly drop since December. Sterling finished the week hitting its lowest rate versus the Dollar in three months (9th June).
All in all, not a great week for sterling with negative weekly moves against many majors. The drop against the Dollar is illustrated by the below chart, as well as the slight bounce back this morning:
A raft of different Eurozone releases last week, most of which were poor. Spanish unemployment was forecast to improve but actually worsened in August. German data at the start of the week didn’t fare much better, with trade balance data also worse than had been hoped. Final CPI (m/m) in the country was confirmed as 0.3% for the third month in a row, and industrial production for July showed negative growth again. This is the fifth consecutive miss.
Eurozone Services PMI’s were all worse than expected for the respective countries too, whereas Retail Sales for the bloc were down by -0.2% June to July. Christine Lagarde’s Monday speech gave no clues as to the likely course of action in this week’s ECB meeting. A hike or pause both seem possible, probably the latter edging it currently. Worth watching for Euro movement come Thursday lunchtime’s proceedings.
The below shows the movements on Sterling-Euro during last week:
Last Monday was a bank holiday in the US for Labor Day, but beyond that the Dollar momentum continued off the back of the previous Friday’s Non-Farm Payrolls. The main release was the Fed’s Beige Book on Wednesday night, containing the data which policymakers use in the next meeting. The notable points surrounded growth slowing in July and August, as well as an expectation of wage growth slowing later this year. Will this lead to the latest pause from the Federal Reserve next week?
Elsewhere, Australian interest rates were held at 4.1% for the third month in a row, as was forecast. Also in Australia, GDP figures released showed the economy grew by 0.4% from Q1 to Q2, again as forecast. Canada held interest rates at 5% amidst stubborn inflation there. This was also in line with market expectations.
This week:
Monday – MPC member Huw Pill speech (09:00 UK time)
Tuesday – MPC member Catherine Mann speech (00:00), UK Unemployment & Claimant Count (07:00), German ZEW Economic Sentiment (10:00)
Wednesday – UK GDP m/m exp -0.2% (07:00), US CPI & Core CPI exp 3.6% (13:30)
Thursday – Australian Unemployment rate (02:30), ECB rate announcement (13:15), US Retail Sales & Unemployment Claims (13:30), ECB Press Conference (13:45)
Friday – Eurozone Trade Balance (10:00)
The week kicks off with Huw Pill making a speech, always a worrying prospect after performances over the last year! UK unemployment numbers are the main release of Tuesday morning, with the headline figure expected to edge up to 4.3% from 4.2% last month. The average earnings index will also be of interest to see how it is faring versus inflation, as a high figure could well be the catalyst for a Bank of England rate rise next week.
Speaking of factors to influence rate hikes, Wednesday’s US inflation data will be a key factor in what the Federal Reserve opt to do, the following Wednesday. So we have a high potential of volatility this week.
After last week’s non-specific speech from Christine Lagarde, there seems to be the possibility of a rate rise or a pause from the ECB. A split decision is almost a certainty, but which way it falls remains to be seen.
So plenty of significant releases over the next two weeks. Reach out to the team with any pending requirements and we will look to assist where possible.
Have a great week.
