Good morning,

GBP: Girl, interrupted

Sterling did not react to Theresa May’s conference speech yesterday with the majority of reaction taking place on Twitter and on the front pages of this morning’s papers. Ultimately the metaphor speaks louder than the words put forward by the PM and whilst there will be rumours over her tenure, the focus of currency markets will remain on Brexit. Her speech had little to say on the matter, instead focusing on domestic issues. Had she had similar issues in Florence then this may be a different kettle of fish but apart from sniggers from the side lines and some rather obvious jokes, the next round of Brexit talks that commence next week will begin unchanged.

Yesterday’s PMI number from the UK services sector highlighted an industry wherein sentiment is decent but issues around future orders and pricing may damage the outlook in coming months. On the basis of the September survey data we now estimate that UK GDP growth in Q3 will equal Q2’s at 0.3% q/q. This would be in line with BoE assumptions and therefore we believe interest rate assumptions should remain broadly unchanged as a result. Of course, this is a read on sentiment and not output and the overall picture could once again change once production results filter through.
Lastly we have two members of the Monetary Policy Committee speaking later today, both of whom are likely to increase the rhetoric around a Bank of England rate hike in November. Ian McCafferty will definitely vote for a hike in November and Bank of England Chief Economist Andy Haldane previously hailed a rate rise as a ‘good news story’. At the margin neither speech is expected to materially move sterling; swaps markets are currently pricing in a 77.3% chance of a hike coming on November 2nd.

EUR: Catalonia news drifts on

Catalan President Carles Puigdemont said “we will show our best face in coming days when our institutions apply the results of the referendum” being simultaneously open and opaque about exactly when the region will declare independence from the Spanish state. Euro has traded in a tight range for the past 48hrs with neither side wanting to move the needle much as the event risk of an announcement is huge one way or the other. Patience is a precious commodity but we would not be surprised if investors sold the euro heading into the weekend in anticipation of an announcement over the weekend.

US: Services data storms higher

September non-manufacturing numbers from the States were very strong although an element of this performance will have come from a bounce back from hurricane related weakness. The US ADP jobs report showed growth of 125,000 jobs in September and while this is very imperfect indicator as to what will happen in Friday’s official jobs report, we are expecting a number that could easily be the weakest since March’s fall to 50,000.
We also have 4 Fed speakers due this afternoon with all expected to talk up the prospects of a rate hike in December.

Have a great day

Jeremy Cook, Chief Economist