Ulster Bank Markets Daily Top Three
Eurozone Inflation disappoints while US jobs growth continues
As highlighted in yesterday’s commentary, the release of the Eurozone CPI posted lower than the consensus forecast (0.3%) at 0.2% year on year, with core inflation (excluding food and energy) dropping to 0.8% from the previous reading. There was also downward pressure on Services inflation, moving from 1.2% to 1.1% , and goods inflation, which fell from 0.4% to 0.3%.
The US ADP employment release showed that the US private sector added 177,000 jobs in August, versus the market expectation of 175,000. Interestingly, there was an upward revision to the July figure but as always the ADP survey is secondary to the more market moving Non-Farm Payrolls due tomorrow.
Health of global manufacturing in focus today
UK Manufacturing PMI fell significantly in July post the Brexit referendum, falling to 48.2. Clearly, there remains uncertainty about the future path of the UK economy but there is anticipated to be a rebound for the August reading to 49.0. While this rebound may see the pound take some short term gains, we urge caution into reading too much into this one data point. Unlike the UK Manufacturing PMI, the Eurozone survey continues to post growth. This morning’s figures reveal 51.7, slightly below the earlier flash estimate.
US Manufacturing ISM is also due today. There was a dip in last month's reading primarily due to the decline in the supplier delivery component, however subsequent data suggests that this softening could continue. The consensus view is for a further softening from 52.6 to 52.0.
UK Gilts post Brexit
Following the referendum, there remains uncertainty on a number of fronts. However, in UK interest markets, it has largely been a case of one way traffic - downwards. The cost of government borrowing over 10 years (10-year UK gilt) has fallen from 1.37% on 23rd June (the day of the EU referendum vote) to 0.66% today. Placing this into context, in August 2007 the rate was 5.25%. While these levels are attractive to the UK Government, the yield returned to pension fund managers is clearly not . This ongoing story is likely to run for some time.