Markets
With US financial markets closed in observance of Labour Day and a rather poor economic calendar, today was destined to be a dull start of the week/month. The US imposing new tariffs and China retaliating caught most headlines. However, Trump did say that talks between the country’s negotiators scheduled for September are still on. Conflicting signals and lack of other important drivers resulted in a mixed Asian trading session and choppy, low volume European dealings. Stocks manage to eke out marginal gains of about 0.3%. The German Bund held a downward bias during a mostly technically inspired trading session but did recover from its intra-day low. The yield curve bear steepened with yield changes varying from flat (short end) to +1.5 bps (30-yr). Peripheral spreads narrow in Greece (-2 bps). The Italian spread narrows about 4 bps as coalition talks continue. EUR/USD extends last week’s decline amid overall dollar strength. The pair hit a new 2019 low around 1.096, the weakest level since May 2017. USD/JPY tested the 106 handle during early hours but soon edged higher throughout the day to trade at 106.36 currently. Labour Day in the US typically concludes Summer trading conditions. We now watch for the economic calendar to heat up with US manufacturing ISM due tomorrow, an avalanche of central bank speakers on Wednesday, the ADP job report and non-manufacturing ISM on Thursday and Friday’s August payrolls.
After his decision to prorogue Parliament last week, Johnson again caused upheaval in British politics. He said during an interview on Sunday that he would throw out any Tory party member who will support a Labour led vote tomorrow, aimed at preventing a no-deal Brexit. What’s more is that Johnson will treat tomorrow’s key vote as a vote of no confidence. Under British conventions he could then trigger a general election, should he suffer a defeat. With Brexit due in barely two months’ time, the UK and EU nowhere near a deal and the increased prospects of uncertain elections, you can hardly make a case for the pound to strengthen. Today’s data (manufacturing PMI, see below) didn’t provide any relief for the currency either. EUR/GBP jumped from the low 0.90’s to close to but below 0.91. Cable is hovering near August lows of 1.205 as the couple is hit twice by pound weakness and overall dollar strength.
News Headlines
The UK manufacturing PMI unexpectedly dipped further in August to the lowest level since 2012. It printed at 47.4, down from 48 (vs 48.4 consensus) and is now 4 straight months below the 50 boom/bust mark. The high levels of economic and political uncertainty pervasive across the domestic and global markets continued to weigh heavily. Steep reductions in new orders were registered across the consumer, intermediate and investment goods industries, contributing to ongoing downturns in output in all three product categories. Manufacturing employment fell at one of the fastest rates since 2012, driven by cost saving initiatives, slower growth and Brexit uncertainty.
Turkish economic growth beat forecasts in Q2, coming in at 1.2% Q/Q and -1.5% Y/Y. Details showed a slump in fixed-capital investments (-7.4% Q/Q) while consumption (3% Q/Q), government spending (1.9% Q/Q) and net exports (2.7% Q/Q) contributed positively. The Turkish lira profited from the GDP print with EUR/TRY returning below 6.40.
