Friday 30 September 2016

Daily Market Update: Improving US labour market driving consumer confidence

Richard Ramsey

Published 30/09/2015 | 11:18

Wall street sign
Wall street sign

Wall Street’s S&P 500 closed yesterday slightly higher after a volatile session.

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The key release in the US was the Conference Board’s consumer confidence index. Consumer sentiment hit an eight-month-high in September and was much stronger than expected. There were also signs of a further tightening within the labour market with the “jobs hard to get” index posting a marked rise in September. The US labour market remains in focus today with the ADP employment survey due this afternoon.

The consensus opinion amongst economists is for a repeat of August’s 190k net gain in private sector employment. Meanwhile the Chicago PMI is expected to show a further slowdown in manufacturing activity in one of the US’s industrial heartlands. Financial markets will also pay close attention to a number of Fed speakers today. FOMC members Dudley, Bullard and Yellen are all scheduled to speak later today.

While consumer sentiment is improving within the US, the converse holds true for the UK according to a survey released this morning. The GfK consumer confidence survey revealed that sentiment has slipped to a four-month-low in September. However, this survey is at odds with the latest CBI distributive trades survey which yesterday revealed a surge in sentiment in September and a four-month-high. Meanwhile UK house prices continue to rise with the Nationwide house price survey released already this morning posting a 0.5% m/m rise and 3.8% y/y in September.

This follows encouraging news on the mortgage approvals front yesterday. UK mortgage borrowing increased in August by the largest amount since the financial crisis. Net lending rose by £3.4bn last month, the largest monthly increase since spring 2008. Meanwhile mortgage borrowing hit an 18-month high of 71,000 in August. The Bank of England governor was also speaking last night. However, the focus of the speech was on the financial risks posed by global warming with no reference to the UK’s near-term economic outlook or monetary policy. Today in the UK we get the final Q2 GDP figure and the index of services figures for July.

The various European Commission confidence surveys were in focus yesterday alongside the latest CPI figures. All of the various Eurozone sentiment surveys, bar consumer confidence, signalled an improvement in September. The overall economic confidence indicator exceeded expectations and reached its highest level since June 2011.

Meanwhile downside surprises were the order of the day with the latest CPI figures for Spain and Germany. The former saw the largest downside surprise with Spanish consumer prices falling by 1.2% y/y in September, exceeding the 0.7% decline anticipated by economists. German CPI was flat in September following the 0.2% annual rise last month. These inflation figures make it likely that we will see this morning’s CPI print dip into negative territory. No doubt such a result will trigger sensationalist deflation headlines. Treat these with a large pinch of salt.

Be prepared for potentially more negative Chinese economic news tomorrow. The official Chinese PMI surveys (manufacturing and non-manufacturing) for September will be released early tomorrow morning. The flash estimates of the Caixin PMIs (undertaken by Markit Economics) released last week signalled a slowdown in the services sector and an acceleration in the rate of decline in manufacturing activity in September. The finalised Caixin PMIs will also be released tomorrow morning.

On the currency markets the dollar has adopted a firmer tone over the last 24 hours. EUR/USD is currently changing hands at $1.123 down from $1.128 yesterday morning. Cable is currently trading at $1.514 down from $1.518 at yesterday’s open. Finally, EUR/GBP is a shade lower over the last 24 hours and is hovering around 74.1p as I write. Northern Ireland farmers will be pleased at the sterling’s weakness against the euro in recent weeks. The average exchange rate over the month (73.2p) will help determine the EU Basic Payment Scheme (formerly Single Farm Payment) paid in euros. You will recall the exchange rate dipped below 70p last month. Despite this improvement in recent weeks the payment to Northern Ireland farmers will be around 20% lower than last year.

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