MAIN EVENTS THIS WEEK
Monday: SP/IT/FR/GE/EU Manufacturing PMI (F), UK Manufacturing PMI, ECB’s Weidmann and BoJ Kuroda speak, US & Canadian bank holiday (Labour Day)
Tuesday: AU RBA rate decision, UK Construction PMI, TSC Quarterly Inflation Report hearing, EU PPI, SZ CPI, US Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, IBD/TIPP Economic Optimism, Total Vehicle Sales, CA Manufacturing PMI
Wednesday: AU GDP, CN Caixin Services PMI, SP/IT/FR/GE/EU Service PMI (F), UK Services PMI, EU Retail Sales, US Trade Balance, API Inventories, CA BoC rate decision, Trade BalanceThursday:
Thursday: AU Trade Balance, SZ GDP, GE Factory Orders, Spanish and French 10-yr bond auctions, US ADP Employment Change, Challenger Job Cuts, Weekly Jobless Claims, Markit Services PMI (F), ISM Non-Manufacturing PMI, Factory Orders, DoE Inventories, CA Building Permits, Fed’s Williams, BoC’s Wilkins, SNB Zurbrugg speak
Friday: CN Trade Balance, GE/FR Trade Balance, Industrial Production, UK Consumer Inflation Expectations, EU GDP (R), US Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings, CA Employment Change and Rate, Ivey PMI, Eurogroup meeting, Turkish President Erdogan and Russian President Putin meet Iranian President Rouhani
Saturday: Informal meeting of EU economic and financial affairs ministers
Sunday: Chinese President Xi visits North Korea, Russian regional elections
Now that the World Cup and Wimbledon have come to their conclusion markets can now fully focus back to the events for the trading week ahead. However, for any of our French friends you will be forgiven for a late start this morning… Philippe I’m talking about you!
A day is a long time in British politics…
Last week was memorable for the GBP but as we thought limited in terms of the actual Brexit negotiation. As such, what appeared to be a positive development and a potential concession from Europe proved decidedly short-lived with Michel Barnier stating over the weekend that he “strongly opposed” the Prime Ministers Chequers proposal on future trade.
Therefore, the rally seen last week has been completely reversed with the last leg lower attributed to the latest UK manufacturing PMI data which is now at a 25-month low, with new export orders contracting for the first time since April 2016, and business optimism dipping to a 22-month low.
Politics is to remain a key force for sterling’s direction moving forward, and with both Labour and Conservative Party conferences coming up in a few weeks’ time, the developments are likely to remain a catalyst for GBP movement for some time to come.
On a separate note, UK Parliament returns from summer recess on Tuesday which already has seen former foreign minister Boris Johnson fire his latest shots at the Prime Minister, suggesting her Chequers plan is equivalent to waving the “white flag” going into the crux of negotiations.
Finally, as the Tory Party conference at the end of the month approaches (Sept 30-Oct 3rd) it would not be surprising to see this type of assault, and attempt to disrupt May’s leadership, become even more acute meaning a risk of increased volatility for Sterling and potential for further downside risks to the Pound.
The return of EM risk…
In this morning’s market briefing I talk at length about the potential for risks for this week emanating from renewed fears over the emerging markets. These concerns come in a variety of forms whether from economic data to renewed political risks.
Although in isolation events in Argentina, Brazil or even Turkey have been relatively contained, a synchronised loss of confidence in EM’s could quickly escalate which would likely be reflected in a renewed flight to quality short-term in global assets. For more on this please click HERE.
The only way is up...
US equities remain in bull mode and as noted by Bloomberg, if history is to be repeat itself the S&P 500 has moved higher after Labor Day every year since the bull market started in 2009, having gained on average 7.2%.
Risks to the relentless rise in US equities comes in the form of EM contagion and Trump protectionist talk rather than economic data itself. I say this with full knowledge that NFP is coming this Friday which I see as limited in its potential to move the needle for market participants and members of the Fed alike. As such, although there is room for a temporary pull-back I would still prefer the long at this point in time.