Articles from September 2016



FED keeps loans interests rate unchanged

There was no surprise from this week’s FED meeting, as Janet Yellen announced there would be no loans interest rate hike in September.

There was no surprise from this week's FED meeting, as Janet Yellen announced there would be no loans interest rate hike in September.

The interest rate has not moved since last December’s decision to move interest rates from 0.25% to 0.5%. Another rate hike in December 2016 is now looking a shoe in.

It seems that unless global economic sentiment deteriorates in the next few months, December is seen as a good time to move again. As key data solidified in recent months, the Fed now want to see ‘economic progress’. Employment and inflation will be scrutinised until the end of the year, and the Fed members seem more aggressive as three voted to move rates, where as in July there was just the one.

UK’s public sector net borrowing falls

The UK’s Public Sector Net Borrowing fell in August, as the latest figures from the Office for National Statistics were released. The Public borrowing figure has dropped to £10.5 billion from July, down £0.9 billion from a year earlier, but the numbers had been expected to fall an additional £500 million. UK Borrowing in the present economic year to date has touched £33.8 billion, which is £4.9 billion lower than the previous year.

The ONS did say that ‘there was no clear sign of Brexit voting affecting the figures’. They also added that ‘receipts from income and corporation taxes rose strongly compared with a year ago, but VAT receipts rose at their slowest annual pace since March 2015′.

Also out was positive car production news in the UK, as car production touched a 14 year high in August. According to the Society of Motor Manufacturers and Traders (SMMT), just over 109 K vehicles were released from manufacturers hands, up 9.1% year on year.

Attention shifts to Sterling

Following a bit of an anti-climax after no policy changes from the FED on Wednesday we only saw a narrow trading range of about 100 points on the GBPUSD pairing yesterday. We surprisingly saw an even narrower trading range on GBPEUR yesterday considering we had the President of the ECB, Mario Draghi speaking at 2 pm. Further to this, he gave a speech at the first annual conference of the ESRB (European Systemic Risk Board) where he discussed overbanking in Europe and macro-prudential policy. We didn’t see too much market movement during this speech as it was mainly focussing on the broader picture of the over European banking system.

Attention focuses on Eurozone and US PMI

With not much news to drive the market today, the attention will be focussed on Eurozone and US PMI. So far, both have shown resilience in the face of the UK’s vote to leave the EU although analysts will be watching for hints of pre-election nerves within the US economy.

Bank of England leaves interest rates on hold

Wise Money is pleased with loans interest rates news from Bank of England.

Wise Money is pleased with loans interest rates news from Bank of England.

The Bank of England rate decision meeting didn’t provide any fireworks last week, as UK policymakers voted 9-0 in favour to keep interest rates unchanged. Despite signalling further rate cuts in the future, the decision didn’t come as a surprise considering the amount of stimulus they introduced last month.

The central bank is monitoring recent data closely, and they are encouraged to see that the stimulus package seems to be working, as recent data has been fairly positive and at times even better than market expectations.

It appears that investors are still not worried about the implication of the Brexit, at least until they find out what it really means. For this they will have to wait until article 50 is invoked early next year.

Busy money market data releases

It has been a very busy 24 hours in terms of economic releases. In the US, data came in softer, led in particular by a disappointing retail sales number. Headline sales were down -0.3% last month, the first decline in 5 months. Excluding autos and gas, spending fell -0.1%. Industrial production also declined in August, printing -0.4% against a market expectation of -0.2%.

It wasn’t all bad news though, as manufacturing activity encouragingly bounced back in the New York and Philadelphia regions, but it is not enough to convince investors that the FED will have enough reasons to lift interest rates next week.

Data in Europe will be quiet with final Q2 wages numbers due out in France. In the US, investors will closely look at August CPI report with market expectations of an increase of +0.1% month on month. Those numbers also match the views of our US economists. As always in the US, the University of Michigan consumer sentiment is scheduled for release.

Wise Money watches FED eyeing US data

The US FED is watching the to non manufacturing data to decide on interest rate hike.

The US FED is watching the to non manufacturing data to decide on interest rate hike.

Sterling has started the week on the front foot after last week’s positive manufacturing PMI print coupled with a better than expected services PMI sector. With Friday’s US non farm payroll data falling considerably short of expectations, the Pound rallied and GBPUSD currently finds itself trading just over the 1.33 mark.

The weak print from the US jobs data put pressure back on the Federal Reserve on the interest rate decision given that they were so heavily banking on employment numbers. At the Jackson Hole symposium last month, Janet Yellen and various Fed members were fairly hawkish on increasing interest rates but the fall in job growth has meant that analysts are now expecting the next hike in December at the earliest, if any.

However, later today, we are expecting data from the US including ISM non-manufacturing composite numbers which will be heavily watched by the markets as it could be the last resort to finalise any action from the Federal Reserve.

GDP revisions and retail PMI numbers expected from the Eurozone

From the Eurozone, second quarter GDP revisions and August’s retail PMI numbers are out today which could put further pressure on the euro. Last week’s manufacturing PMI data fell well short of expectations from the Eurozone and news flow and economic sentiment have rapidly deteriorated over the past fortnight.

Given such uncertainty, all eyes will turn to the ECB meeting later this week as markets are preparing themselves to see what stimulus measures the European Central Bank will further undertake.

In the midst of weak data from the US and the Eurozone, coupled with surprisingly positive data prints from the UK, Sterling seems to be enjoying a steady consolidation phase for the moment although any sharp moves up are fairly limited due to the uncertainty and forthcoming negotiations on how ‘Brexit’ will pan out.

A 10 year treasury gilt auction makes for the sole activity on the economic calendar for the UK today.