Weekly Market Report 24th - 26th
Good morning everyone,
Following Sterling's decline on Friday after UK PM Theresa May’s speech, the currency has stabilised this morning. Following setbacks at the EU summit in Salzburg, the cabinet is set to meet today to discuss next steps amid speculation that aides of the Prime Minister have discussed the possibility of holding a general election in November. Meanwhile, the Institute of Economic Affairs is due to publish an alternative Brexit plan, which is set to be endorsed by former cabinet members, Boris Johnson and David Davis.
At the Labour Party conference yesterday, the opposition agreed the wording of a motion on a second referendum which will be put to members at the conference on Tuesday. With the latest round of trade tariffs prompting Chinese officials to cancel talks with the US that had been scheduled for this week, the standoff between the two nations continues to show little sign of letting up.
The latest round of Eurozone PMI's, released last Friday, provided some evidence that the ongoing trade tensions were impacting economic activity in the region. Manufacturing sentiment fell back sharply in September, reaching a two-year low as companies reported a sharp slowdown in the flow of new export orders. The deterioration was particularly acute in Germany, where growth in new export orders shrank for the first time since July 2015. Today’s release of the Germany IFO survey is expected to emphasise these trends, with drops in both the current assessment and future expectations components expected. As a result, we expect the headline business climate to drop to 103.4 from 103.8.
In contrast, UK export orders have continued to hold up well in recent months according to the CBI’s Industrial Trends survey, though it should be noted that export orders in the latest PMI moved below 50. Today’s update will be watched for any sign that global trade tensions are beginning to impact on domestic export sentiment.
Meanwhile, ECB President Mario Draghi is scheduled to testify before a committee of the European Parliament in Brussels at 14:00 BST. He is likely to be quizzed on the current economic situation and inflation developments, which may provide some additional insights on the outlook for Euro area monetary policy.