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.

Wise Money waiting for key US data on Friday

Today we have US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

wisemoney US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

Feedback from the labour market is the highest consideration, as the FOMC judge whether it is appropriate to increase interest rates. On Friday the payroll data is expected to come in at a healthy 175k, and average earnings are likely to increase by 0.2%.

We could also see the unemployment rate fall slightly to 4.8% from 4.9%. If we see positive US data this week, it will build expectations for a September rate hike and lead to USD gains.

Eurozone inflation softer for August

In the Eurozone, CPI for August (y/y) has come in slightly softer than expected at 0.2% vs 0.3% expected. In addition, the unemployment rate for July has been confirmed at 10.1% which is in line with forecast. This morning the euro has been on the back foot and disappointing inflation data will not help this trend.

Pound finds tentative momentum

The Pound has managed to pick up this morning against the euro and the USD. Following a better run of UK data this week, the pound is finding some tentative momentum. Tomorrow we have UK Manufacturing PMI, and on Friday Construction PMI to give further feedback for the UK economy.

Theresa May wastes no time in planning UK’s Brexit strategy

Theresa May is wasting no time in planning the UK’s Brexit strategy as she travels to Germany and France for discussions.

Theresa May is wasting no time in planning the UK's Brexit strategy as she travels to Germany and France for discussions.

Two of the more significant economies of the EU are keen to meet and begin discussions about an exit plan with the new PM. They have both stressed that no in depth proposals will be looked at until Article 50 is triggered.

Canada is the latest country to have ‘shown interest’ in the form of a trade deal to the UK since the referendum outcome, which if true will no doubt have investors starting to believe in the pound again. Other stronger nations such as the US, Australia and India to name a few have also potentially sounded out a trade deal.

London mayor launches #LondonIsOpen

London Mayor Sadiq Khan has been on the front foot this week, launching #LondonIsOpen, aimed to keep investors ploughing their funds into UK Markets and hoping to keep tourists flocking to major parts of the UK. The campaign has been backed by senior political figures, business leaders and celebrities alike.

Today we get to digest data from the UK & EU, with GBP Consumer Price Index figures out at 0.5% against previous showing of 0.3% which has boosted the pound slightly plus German ZEW Survey.

US Dollar surges after non farm payroll boost

The US Dollar received a boost in trading, as did stock markets after the non farm payroll report was released.

The US Dollar received a boost in trading, as did stock markets after the non farm payroll report was released.

With job numbers in the US soaring by 287,000, way above the 170,000 expected number; investors flocked to the US dollar to find stable ground, as uncertainty lingers in the Eurozone after the Brexit vote in the UK.

However, gains were slightly capped for the Greenback, as average weekly earnings are still muted, though markets still seem to be moving towards a risk off scenario.

Despite the strong labour report, talks of an interest rate hike seem to be off the table for the near future from the Federal Reserve, as we move back into market consolidation mode.

As far as economic data goes, the US starts us off with the Conference Board Employment Trends Index and the Federal Labour Market Conditions Index, coupled with a speech by FOMC member George.

Concerns over Italian banks mount

Meanwhile in the eurozone, concerns over Italian banks continue to mount, though analysts still insist that internal stress tests for the banks reveal they are resilient and do not need any bailout funds. Euro area finance ministers are due to meet in Brussels today on a fairly quiet start to the week on the economic calendar.

Sterling subdued

Sterling remains subdued and under pressure after the Brexit vote; as markets are likely to remain in limbo until we have a leader of the Conservative Party to carry out the trigger to Article 50. The pound has slid down further after Friday’s positive US data, and currently GBP/USD is trading well below the 1.30 level.

Most of the focus for the UK currency markets will be on tomorrow’s speech by Bank of England Governor Mark Carney on financial stability and the inflation report hearings to provide further direction. The BRC Retail Sales Monitor is due for release today and will provide interim direction for the pound.

US jobless claims drop

We are just a few hours away from the spring Bank holiday and today is expected to be a quiet day.

We are just a few hours away from the spring Bank holiday and today is expected to be a quiet day.

The main piece of news out today will be the second estimate of US growth in the first three months of the year which is scheduled at 1.30pm GMT.

The first estimate was disappointing and showed growth slowing to an annual rate of just 0.4% and with the latest sets of data; economists believe the figure could be revised up. Jobless claims dropped to 268K from 278K, durable goods orders rose 3.4% and pending home sales increased 5.1%.

We learned from Fed President Powell that a rate hike may be appropriate fairly soon. Powell said “Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon”.

Many analysts agreed that Powell didn’t show any sense of great urgency to move at the June meeting and he stated that he had not made his mind up yet. He sounded cautious when he added “I can imagine the upcoming Brexit vote as presenting a factor in favour of caution about raising rates in June”.

Investors encouraged by stronger German data

No major Eurozone economic reports were released yesterday but investors were encouraged by stronger German data. Everybody seems to agree the ECB will leave interest rates unchanged but improvements in Germany and France could persuade the Central Bank to wait and see the effect of the current stimulus before deciding on the next step.

UK GDP figures released yesterday

Over in the UK, GDP figures were released yesterday and came in line at 0.4% on a quarterly basis but were slightly weaker on an annualised basis as they came in at 2.0% versus a market expectation for a 2.1% reading. Brexit is weighing on the economy as the underlying data showed weakness. Exports were down and business investment was disappointing.

The only bright spot was provided by government spending and consumer spending, which helped to offset the decline. The housing market is also showing signs of a slowdown as data from BBA Mortgage approvals showed a low at 40.8K against 45K in the previous month. This seems to indicate that the Brexit might be a drag on the housing market.

As mentioned earlier, the economic calendar is light today. In Europe business and consumer confidence surveys are due out in Italy, consumer confidence in France and retail sales in Spain.

The main focus will be in the US with Q1 GDP growth scheduled for release with analysts expecting a 0.4% upward revision. Later in the afternoon Fed Chair Yellen will also be interviewed at a Harvard event. The US and UK markets will remain closed on Monday.

Commonwealth dream for Brexit

Eurosceptics campaigning for the UK to leave the European Union dismiss the idea that “Brexit” would leave the country economically isolated and bereft of trade alliances.

Eurosceptics campaigning for the UK to leave the European Union dismiss the idea that
They point out that the UK’s links with the 53 nation Commonwealth, composed mainly of territories that belonged to the former British Empire- predate its membership of the EU.

And the Commonwealth itself is eager to stress the trade advantages that its members enjoy by virtue of belonging to the association.

As it opens its 24th summit in the Maltese capital, Valletta, which runs from 27 to 29 November, its place in the global trade landscape is a topic high on the agenda.

At least one influential senior Commonwealth figure from outside the UK argues that the country has no need to choose between the EU and the Commonwealth – it can have both.

With the eurozone currently beset by economic troubles, some commentators feel that the UK should turn away from its stagnating neighbours in favour of broader global trade pacts.

They are assisted in this view by statistics such as those produced by the organisation World Economics, which has a growth tracker showing that the Commonwealth has already overtaken the eurozone in its share of world economic output.

“The Commonwealth accounts for 2.6% more than the eurozone in terms of world GDP share,” states World Economics. “Economic growth in the Commonwealth has accelerated over the post-1973 period in sharp contrast to the EU.”

However, such comparisons can be misleading, since the Commonwealth is far from being a unified or homogenous bloc.

As the Commonwealth’s own website says, “Our countries span Africa, Asia, the Americas, Europe and the Pacific and are diverse – they are amongst the world’s largest, smallest, richest and poorest countries.

“Thirty one of our members are classified as small states – countries with a population size of 1.5 million people or less and larger member states that share similar characteristics with them.”

In fact, just six Commonwealth countries account for more than four fifths of all trade conducted by the organisation’s members. Apart from the UK, they are Australia, Canada, India, Malaysia and Singapore.

As things stand, the UK isn’t exactly giving any of these countries the cold shoulder. Earlier this month, the UK and India signed commercial deals worth £9 billion during a visit to London by India’s Prime Minister Narendra Modi – a visit seen as giving an important boost to the UK’s relations with the world’s fastest-growing large economy.

Other big Commonwealth economies are not badly placed either. Some Conservative MPs, including Boris Johnson, feel that the UK “betrayed” countries such as Australia when it joined the EU in 1973, but the Australian government doesn’t seem to see it that way.

“We share an extensive economic, trade and investment relationship,” says the Australian government website’s country brief on UK relations, before going on to list the evidence.

Investment is particularly strong: the UK is “the second-largest source of total and direct foreign investment in Australia”, while Australia returns the favour, with the UK also being “Australia’s second most important foreign investment destination”.

For its part, the Commonwealth stresses that countries benefit economically from belonging to the club. According to its Trade Review 2015, members’ combined exports of goods and services amounted to $3.4 trillion in 2013, “which is about 15% of the world’s total exports”.

“When both bilateral partners are Commonwealth members, they tend to trade 20% more, and generate 10% more foreign direct investment inflows than otherwise,” says the review.

“This ‘Commonwealth effect’ implies bilateral trade costs between Commonwealth partners are on average 19% lower compared with those for other country peers.”

So the Commonwealth does seem to confer economic benefits on its members.

Global stock markets slide on Greece debt crisis

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controls.

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controlsThe moves by the Greek authorities came after the European Central Bank decided not to extend any extra emergency funding.

London’s FTSE 100 index was down 1.47% and Germany’s Dax index fell more than 2%. In the US, the Dow Jones fell nearly 1% early in the session.

Bank stocks are among the hardest hit, with shares of Deutsche Bank and Commerzbank both losing more than 4%.

The Athens Stock Exchange and Greek banks will be closed all week.

On the money markets, the euro lost ground against other major global currencies.

The London FTSE 100 share index was down 98.47 points at 6,655.23 with other European markets seeing even bigger falls. Earlier in Asia, Japan’s Nikkei index fell nearly 3%.

On the currency markets, the euro saw volatile trading in Asia, falling by 2% at one point. However, it has since recovered some ground, with the euro down 0.15% against the dollar at $1.1149.

The euro has weakened against the pound, with one euro now worth £0.7089, while the pound buys €1.4108.

Oil prices are heading lower. Brent crude oil futures fell more than 1.5% to $62.10 a barrel.

Bond yields (an indication of borrowing costs) for Italy, Spain and Portugal – which are considered some of the weaker eurozone economies – rose sharply.

In contrast, German bond yields fell. German bonds are seen as safer investments in times of crisis.

Greece was due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

Last week, talks between Greece and the eurozone countries over bailout terms ended without an agreement, and Prime Minister Alexis Tsipras then called for a referendum on the issue to be held on 5 July.

At the weekend, the Greek government confirmed that banks would be closed all week, and imposed capital controls, limiting bank withdrawals to €60 (£42) a day.

There is zero chance of the European Central Bank turning Emergency Liquidity Assistance back on – life-saving lending to banks – unless Greeks give an affirmative vote to a bailout proposal from the rest of the eurozone and the IMF, which Juncker sees as a proxy for Greece’s monetary future.

As for Athens, most of the Syriza government detests the bailout offer – for the way it pushes up VAT and cuts pensions.

So we will have the bizarre spectacle of a Prime Minister, Alexis Tsipras, arguing both against the bailout and for remaining inside the eurozone – so goodness only knows how he will vote.

And Greek people will be torn between fear and loathing of bailout proposals that will damage the living standards of many of them, and fear and loathing of abandoning the euro and seeing their banks closed.

Greek worries wise money markets

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek default for the first time.

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek defaultThe Athens stock exchange closed nearly 6% lower, while Germany’s Dax and France’s Cac 40 closed more than 1% lower.

Stocks in the National Bank of Greece fell by more than 10%, while Piraeus Bank fell more than 11.5%.

According to official sources quoted by news agencies, senior eurozone officials meeting in Bratislava on Thursday held their first formal talks on the possibility that Greece might default on its debt payments.

Also on Thursday, officials from the International Monetary Fund (IMF) pulled out of talks with Greek politicians in Brussels, citing “major differences”.

Greece is seeking to avoid defaulting on a €1.5 billion debt repayment to the IMF by the end of June.

Shares on the Athens Stock Exchange had soared on Thursday amid renewed optimism about Greece’s talks with its creditors.

The index climbed more than 14% – the best performance in several weeks, but the IMF’s withdrawal has dampened investors’ moods.

On Friday, Jeroen Dijsselbloem, president of the Eurogroup of finance ministers, said a deal without the IMF was “unimaginable”.

However, German Chancellor Angela Merkel urged all parties to continue negotiations.

Speaking at a business conference in Berlin, Ms Merkel said: “Where there’s a will there’s a way, but the will has to come from all sides, so it’s important that we keep speaking with each other.”

In London shares continued their downward slide as fears over Greece’s ability to negotiate a settlement with European creditors dented sentiment.

At the close, the benchmark FTSE 100 index was down 61.82 points, or 0.9%, at 6,784.92.

The top riser was Royal Mail, up 2.78%, recouping some of Thursday’s losses.

The postal services company had fallen 4.5% on news that the government had sold 15% of its remaining 30% stake in the company, raising £750m.

The biggest faller on the 100-share index was Johnson Matthey, down 3.1%. On the FTSE 250, platinum producer Lonmin fell 7.1%, compounding earlier losses in the week, after mining and commodity firm Glencore distributed its 23.9% stake in the company to investors.

On the currency markets, the Pound was up 0.41% against the Dollar at $1.5581 and up 0.25% against the euro at €1.3818.

Wise money markets buoyed by data releases

A combination of better than expected Chinese export growth and German Industrial production has boosted appetite in the markets and led to euro/ US Dollar driving higher yesterday.
Wise money markets buoyed by data releases
In addition overnight it has been confirmed that Australian employment data came in hugely better than expected again boosting risk appetite and leading to gains in the AUS Dollar in early trade.

In other news the NZ Dollar fell after the central bank confirmed that they intervened last month to protect the NZD from further appreciation.

However with interest rates still high compared to the west at 2.5% and limited ability to intervene on a large scale the NZD is not expected to depreciate too much but the move will make speculators think twice before going long NZD.

Elsewhere the Polish Zloty gained ground after the central bank cut interest rates in a surprise move to try to boost growth.

The focus for today will be on the Bank Of England interest rate decision, however it is not expected that we will see any change to interest rates or to QE which will hold at £375 billion.

The recent uptick in economic data in the UK through PMI and GDP coming in better than expected underlines the reasoning to hold firm.

We also have industrial and manufacturing production data due out of the UK this morning which is expected to be weaker than previous releases. From Europe we have the ECB monthly report which although not likely to surprise will be eyed just in case and finally we have US jobless claims which are expected to show an increase in claims.

Euro rallies on economic data

The euro has rallied to a high of 1.3130 following German Factory Orders which surprisingly rose a further 2.2% in March, coupled with rumours that Portugal will auction 10-year bonds for the first time since the 2011 bailout amidst easing finance costs in Europe.Euro rallies on economic dataNevertheless, it appears as though the powers that will be working under the single currency are becoming gradually more dependent on monetary support as Spanish Prime Minister Mariano Rajoy requests the European Central Bank (ECB) to announce extra packages to support small businesses, while Euro Group President Jeroen Dijsselbloem said the region needs more tools to recapitalise commercial banks as the ECB plans to conduct asset-quality review of financial institutions.

Following comments from Mario Draghi last Thursday, it appears as though the ECB are ready to firm up the ailing economy; we should see the Governing Council continue to embark on its easing cycle over the coming months and the central bank may show a greater willingness to apply negative interest rates in the euro-area as the region struggles to return to growth.

Therefore, the ECB monthly report due out Thursday may fuel speculation for additional monetary support, and the EURUSD remains poised to face additional headwinds over the near to medium-term as the outlook for growth and inflation remains weak.

Finally, back to the UK the Pound has found a catalyst by the better than expected GDP number which eradicates some of the short term fears regarding a triple dip recession.

Attention will now turn to the NIESR (National Institute of Economic & Social Research) estimate of GDP for April for further clues on the state of the UK economy.

The Bank of England Interest rate decision will also be a key event. Recently there has been the view that more QE could become available but as yet we have failed to see it. If we this were to be announced expect rates to be pretty choppy following this news.

These data outcomes along with Industrial and Manufacturing results will shape Sterling’s performance for the rest of the month.