Morning Report: 4th of September

September 4, 2018

GBP.  Sterling found itself going down fast on a steep slope after Chief European Negotiator Michel Barnier voiced opposition against Theresa May’s Brexit plan. This resulted in the biggest intraday loss against euro in three months, while sterling also sharply depreciated against the rest of the G10 currencies. To make matters worse the Manufacturing Purchasing Manager Index dropped to 52.8 in August, the lowest level in more than two years. Although a score above 50 indicates expansion in the sector, the historical relationship tells this score indicates a “zero growth contribution” to British Gross Domestic Product in the third quarter. This can put the Bank of England’s growth forecast for the remainder of the year into danger, leading to dovish surprises. Today at 13:15 BST BoE Governor Mark Carney makes his way to Westminster for a Q&A with parliamentarians known as the Inflation Report Hearings.

EUR. Euro had a mixed day with gains against USD and GBP, but came under pressure from Nordic coins as SEK and NOK gained. The data release that stood out the most was the surprise drop in the Italian Manufacturing PMI to 50.1, just a whisker above the level that implies a contraction in this sector. This economic slowdown domes on top of concerns about the fiscal prudence of the new government’s budget plans. The new government is on a collision course with the European Union and its budget rules, an issue which has already sent the required return on Italian government debt with a maturity of 10 years to its highest level in 5 years. Rising debt levels, while the economy is not able keep up with the growth pace needed to service this level of debt bodes a sure path to a financial disaster for the country, which understandably stresses markets.

USD. The greenback stayed uncharacteristically out of the spotlight yesterday as the US enjoyed a bank holiday and moves on USD were mostly caused by developments for other currencies. President Donald Trump did manage to make the headlines again nevertheless, as he cancelled a golf trip to make calls on trade. Especially Canada and China await what the whims of the President have in store for them. Canada aims to become a part of the new NAFTA deal US struck last week with Mexico, while China is under threat of facing yet another $200 billion worth of import tariffs on goods. Today the ISM Manufacturing PMI is due at 15:00 BST while Total Vehicle Sales will be released all throughout the day.

CAD. The “decades of abuse” accusation Trump sent towards Canada regarding NAFTA on Friday still seemed to echo on markets yesterday as the loonie made the biggest losses of the entire G10 currency board, bar the sterling. Today at 14:30 BST the Manufacturing PMI is released, while markets get ready for the Bank of Canada Rate Announcement tomorrow.

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