Good morning,

GBP: Sterling hurt by succession rumours

A drive lower in the pound since the Tory party conference on Wednesday has continued as rumours swirl over the tenure and future of Theresa May. Media reports suggest that around 30 MPs and 5 cabinet ministers are behind a plot to oust the PM and start a leadership contest within the party. The three favourites at the bookmakers to take over the position as leader of the Conservative party are Boris Johnson at 3/1, Jacob Rees-Mogg at 7/1 and David Davis at 15/2, all of whom would likely tilt Brexit policy towards a ‘harder’ stance and subsequently sterling is being marked down.

In the ashes of the general election it looked likely that she would resign but that proved to not be the case. We still don’t think she’ll resign but if Downing St communications policy is misguided enough to schedule a hastily arranged press conference then traders will be thinking one thing and one thing only; a fall for the pound would surely follow.

Overnight BoE member Ian McCafferty told students that “until recently, financial markets had appeared to believe that, almost regardless of how the economy behaved, Brexit-related uncertainties effectively tied our hands until after the United Kingdom had left the European Union. This, we felt, was a misreading of our reaction function.” McCafferty was always going to vote for a rate rise and the odds of borrowing costs rising in November have remained at around the 76% level overnight.

USD: Jobs day in America

The latest reading of US payrolls are, unsurprisingly expected to have been disrupted by the 2017 Atlantic hurricane season – looking at images of Florida, Puerto Rico, Texas, Louisiana and other states impacted, it’s easy to see how the destructive weather will have impacted economic activity.

As such, rather than usual 200,000ish estimate for nonfarm payrolls that we’ve grown accustomed to, economists are expecting a much more sombre 90,000 reading. Even if the figure comes in at double or half of expectations, it still won’t influence the Fed’s deliberations too much and as such, markets shouldn’t read too much into it either.

Despite both the nonfarm payrolls headline figure and unemployment rate being quick to react to the hurricane-induced volatility, wages data won’t be quite as sensitive. As such, it’s these figures the dollar will look to for a guide on inflation, direction and just how much pressure the Fed is under to raise rates. Average hourly earnings are expected to keep pace with the prior month at 2.5% Y/Y.

EUR: Is the pressure starting to tell?

According to the El Pais newspaper in Spain the pressure is starting to tell on the Catalan authorities ahead of the weekend with rumours of a leadership split and a ‘stall’ on the independence process. Prime Minister Mariano Rajoy is set to chair a cabinet meeting on Catalonia today with businesses in the region also starting to express their dissatisfaction with the situation.

At the margin a snap independence decision over the weekend does seem a little less likely this morning but we reiterate our guidance from yesterday that we would not be surprised if investors sold the euro heading into the weekend in preparation of a painful opening on Sunday evening.

Have a great day and a better weekend.