Monday 23 October 2017

Daily Market Update: Sterling continues to slide

Joe Giddens/PA Wire
Joe Giddens/PA Wire

Darren Thornberry

It’s hard to start anywhere else other than sterling weakness. The pound has been under pressure over recent weeks and yesterday was no different.

With no major data releases or announcements of note, it looked like general trading sent the pound weaker. EUR/GBP was at £0.7864 when we opened and climbed just above £0.79 mid morning holding those gains, give or take, for most of theday. GBP/USD opened at $1.4006 and fell below $1.39 by 11.00am – it gradually worked its way back to $1.3930 by close of play.

The main Economic data that came out yesterday was mainly out of the U.S. with the Markits Flash Services PMI for February showing contraction for the first time since 2013 amid concerns about the economic outlook. The business activity index fell to 49.8 from a reading of 53.2 in January – a number below 50 indicates contraction.

New home sales also fell in the U.S. with January’s sales down from December’s 10 month high. Sales dropped 9.2% last month to a seasonally adjusted494,000 units, almost unwinding December’s increase. The overall housing market recovery in theU.S. is still considered to be solid though. Continuing with the housing theme, UK mortgage approvals for January were also out yesterday and they came in at 47.51k versus 43.66k previously.

Chinese stocks tumbled the most in a month overnight as investors booked profits after the market’s recent rebound. The Shanghai Composite index sank 6.4% extending its declines this year to 23% and almost wiped out the 10% rebound from the January low. Indicators for China’s economy are showing that the slowdown hasn’t bottomed out, despite banks extending record new loans in January.

Some indicators are showing that manufacturing and services have fallen to new lows, business confidence is slipping and interest in small and medium sized businesses isdeteriorating. If confirmed in the February readings which starts to roll out from the 1st of March,such weakness would suggest the slowdown is deepening.

Looking ahead to today we have data coming out for money supply and credit growth in the Euro Zone at 09.00am. Watch out for any increase here as this in theory could lead to increase spending which would help inflation go higher. On that note, we do get that exact report this morning with the latest Euro Zone inflation figures out at 10.00am. Over in the U.S. we have Initial jobless claims figures at 1.30pm which are expected to increase slightly from last week with durable goods orders for January also out where an improvement is expected from the December figure.

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