Good morning,
USD: Havens sought after North Korea claims another test
It seems that whatever may happen on the Friday, USD will be lower come Monday as markets digest the latest news from the Korean peninsula. North Korea’s claims that they detonated a hydrogen bomb “with perfect success” caused markets to buy the CHF, JPY and sell the USD with regional currencies dipping as well.
When asked about whether his military would attack North Korea, President Trump told reporters “We’ll see” and left for a meeting with his Generals. His most provocative threat was however that he was weighing up plans to end all trade with any country that does any trade with North Korea; that boils down to a veiled threat to China to get its act together.
Today will likely see another round of rebukes from bodies such as the United Nations but following little reaction to last week’s missile firing over Japan, this is evidence of North Korea turning up the heat. News reports this morning suggest that North Korea is planning another missile test; a test of the weapon and then a test of the delivery system within a few days has not been done before.
USD: Payrolls unable to lighten up December rate hike prospects
T.S. Eliot was wrong when he said April was the cruellest month, for the US jobs market it is almost always August. Friday’s numbers showed an unemployment rate heading higher, weaker wage pressures than expected and fewer jobs created. We do anticipate a rebound in September due to certain seasonal and statistical factors at play in the August numbers that will likely wash out next month. Hurricane Harvey clean up jobs will be coming through in the next weeks and that will allow for a near-turn pick up for example.
Dollar initially weakened on the number but its blushes against the EUR were saved by comments from the European Central Bank.
EUR: Not ready for December?
Thursday’s run of comment from ‘sources’ was followed up on Friday with newswires reporting that the ECB was said to see a chance that the QE plan may not be fully ready by December and that extreme prudence was needed on both policy and the communication thereof. Euro fell like a falling missile after the news but has regained some poise courtesy of the USD selling.
As we noted on Friday an ECB meeting is due Thursday and we will be watching the language on tapering very closely to see whether the most aggressive run of single currency strength in a few years is built on shaky foundations.
GBP: Cracking PMIs need to be followed up by output gains
Sentiment for UK manufacturers in August was only a tickle below April’s highest level for 3 years as orders bound for export markets rose and the domestic market ably supported the sector. This is a cracking start to the 2nd half of the year but the impact on growth will rely on 2 factors; the sustainability of this sentiment boost and how easily it can be translated into higher output. Supply chains are said to be overextended at the moment and lack of key materials – possibly at risk due to higher import costs – may hamper further progression for the sector. Sterling ran higher on the news but if any sector were to benefit from a pound that is close to the weakest level since records began then it should be the nation’s manufacturers.
Construction PMI is due this morning and Brexit will be back on the front pages as Parliament returns tomorrow. Our weekly sterling update will focus in on that as well as a data calendar with a lot of risk for the pound within it.
Have a great day.
Jeremy Cook, Chief Economist