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FX Daily, October 03: May’s Confirmation Sends Sterling Lower

 

Swiss Franc

After the sudden jump with SNB’s Q3 window dressing, the EUR/CHF is trending lower again.

EUR-CHF - Euro Swiss Franc, October 03

. - Click to enlarge

FX Rates

Sterling has a bad case of the Monday blues. Even the moon looks distraught. Prime Minister May has confirmed earlier suggestions that she will trigger Article 50 to formally begin its divorce proceedings from the EU at the end of Q1 17. Several officials have already hinted this time frame, though many have been skeptical that Article 50 would be triggered at all, given the complexities of the issues.

FX Performance, October 03 2016 Movers and Shakers

Source Dukascopy - Click to enlarge

Sterling’s is the weakest of the major currencies today off about 0.8% against the dollar to move within a half cent of the low seen in early July (~$1.2798). Sterling has been sold to new three-year lows against the euro (~GBP0.8745).

FX Daily Rates, October 03

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United Kingdom

News that the manufacturing PMI rose to a two year high helped stabilize sterling in mid-morning dealings in London. The manufacturing PMI rose to 55.4 from 53.3. The median expectation, according to a Bloomberg poll was 52.1. The monthly average for Q3 stands at 52.4 compared with 50.7 in Q2 and 51.6 in Q1. The immediate impact of the referendum on the UK economy has been modest, and cushioned to some extent by lower rates and a softer sterling. Nevertheless, it is the medium and long-term consequences that are the causes of investors’ angst. It is clear that re-establishing strict controls over immigration is preferable to maintaining access to the common market.

U.K. Manufacturing PMI, October 2016

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U.K. Manufacturing PMI, October 2016

Source Investing.com - Click to enlarge

Eurozone

The eurozone also reported the September manufacturing PMI. At 52.6 in was in line with the flash estimate France was revised higher to 49.7 from 49.5.  Italy offered a pleasant surprise. Its manufacturing PMI rose to 51.0 from 49.8. The median guesstimate was for 50.3.

Eurozone Manufacturing PMI, October 2016

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Eurozone Manufacturing PMI, October 03 2016

Source Investing.com - Click to enlarge

However, the details are interesting. Germany matched its flash reading of 54.3. Spain also beat expectations. The 52.3 reading was better than the 51.5 forecast after 51.0 in August. There is no major takeaway. The eurozone economy is broadly steady with growth near trend.

Germany Manufacturing PMI, October 2016

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Germany Manufacturing PMI, October 03 2016

Source Investing.com - Click to enlarge

Japan

The Japanese Tankan survey was a little disappointing as sentiment among large producers was largely flat. Capex plans edged higher from 6.2% in June to 6.3% now, but this trailed expectations for a 6.5% rise. Last week, Japan reported softer inflation figures and a larger than expected fall in overall household spending. Local press reports suggest that BOJ is considering reducing its inflation forecast to 1.0%-1.4% from 1.7%. The Tankan results are consistent with an economy that is struggling to sustain positive momentum. The dollar remains stuck in last Thursday’s range (~JPY100.65-JPY101.85).

 

China

China reported is official PMI over the weekend before the start of this week’s national holidays. The manufacturing PMI remained steady at 50.4, near a two-year high. The non-manufacturing PMI rose to 53.7 from 53.5. The Q3 GDP estimate is due out October 11. The world’s second largest economy expanded by 6.7% in Q1 and Q2 according to official estimates. The yuan formally joined the SDR on October 1. There is no immediate implication trading for the yuan’s exchange rate.

Lastly, we note that the Hungarian referendum on the EU’s immigration policies did not get sufficient turnout to be regarded as valid. This is a blow to Prime Minister Orban, but there seems to be little market impact.

China Manufacturing PMI, October 2016

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China Manufacturing PMI, October 2016

Source Investing.com - Click to enlarge

United States

The US reports manufacturing PMI and ISM and construction spending. 

U.S. ISM Manufacturing PMI, October 2016

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U.S. ISM Manufacturing PMI, October 03 2016

Source Investing.com - Click to enlarge

Consumption rose 4.3% in Q2. This pace cannot be sustained. A pullback back toward 3% this quarter appears to be offset by less of a drag from inventories and, perhaps, a positive contribution from net exports.

U.S. Manufacturing PMI, October 2016

(see more posts on U.S. Markit Manufacturing PMI, )
U.S. Manufacturing PMI, October 03 2016

Source Investing.com - Click to enlarge

However, it is September auto sales that may be the most important.

A recovery back above the 17 mln annualized unit pace (16.91 mln in August) would help reaffirm that American consumers are not retreating, after the disappointing personal consumption reported before the weekend.

U.S. All Car Sales, September 2016

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U.S. All Car Sales, September 2016

Source Investing.com - Click to enlarge

Switzerland

Once again Switzerland showed a down-trend in retail sales.

Switzerland Retail Sales, October 2016

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Switzerland Retail Sales, October 2016

Source Investing.com - Click to enlarge

The Swiss SVME PMI is mostly driven by the machinery industry. This one is again in stronger expansion.

Switzerland SVME PMI, October 2016

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Switzerland SVME PMI, October 2016

Source Investing.com - Click to enlarge

 

Graphs and additional information on Swiss Franc by the snbchf team.

Full story here
Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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