Go GBP!
By Peter Rosenstreich
Conditions are pointing to a December move in bank rates that will catch the GBP bears short. Traders will be watching the Purchasing Managers’ Index (composite PMI 54 expected vs 54.1 prior), Manufacturing (month on month 0.3% expansion expected vs no-gain previously) and Industrial Production (0.2% month on month expected, vs 0.5% previously).
Meanwhile, the pound continued its fall against the Euro today, reversing last week’s bullish move. Sterling is now close to a historic low against the Euro in trade-weighted term – a reality not lost on the Bank of England. Its Monetary Policy Committee has said that a 20% decline in the GBP could equal as much as +1.5% in inflation.
BoE Governor Mark Carney has suggested that exchange rates must influence the bank’s policies. Should the pound weaken on slowed economic growth (rather than worries about Brexit), then the BoE is likely to hike rates. Current GBP depreciation is due to both the economy and to Brexit. Economic data has been soft, but should inflation and activity suddenly pick up, the BoE will quickly go hawkish.
Investors seek safe haven ahead of 7 Sept ECB meeting
By Arnaud Masset
North Korea’s nuclear-bomb test sent investors scrambling for safety, awaiting the next expected news event of 7 September, a monetary policy meeting of the European Central Bank.
With the exception of Chinese equities, which enjoyed a smooth session on Monday, global equities slid. The Nikkei was off 0.93%, while the broader Topix index fell 0.99%. European equities followed Japanese ones lower. The Euro Stoxx 50 was down 0.50%, while S&P 500 futures tumbled 0.47%. The safe havens of gold, the Swiss franc and the Japanese yen were better bid, rising 1%, 0.80% and 0.75% respectively. Other precious metals were also in demand with silver climbing 0.80% and palladium rising 0.90%.
Volatility indexes such as the Euro Stoxx volatility index gapped at opening, jumping from 14.7% on Friday to 16.4% on Monday morning. Demand for bonds also surged sending rates lower. German Bunds yields continued to move lower with the 10-year sliding to 0.36%, while on the short-end of the curve the 2-yeat yield reached -0.73%. EUR/USD edged up in early European session and erased partially Friday’s losses. The single currency rose to $1.1915.