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European Outlook:  Asian stock markets are mixed. The Nikkei is up 0.58%, as Japanese markets shrugged of yet another missile test conducted by North Korea. Hang Seng and CSI 300 is moving sideways and the ASX is currently down -0.71%. U.K. and U.S. stock futures are also down. The surge higher in Sterling following yesterday’s BoE warning that a rate hike may be necessary in coming months, already saw the UK100 heading south yesterday and the index closed down -1.14% on Thursday, with the dip in futures suggesting further losses today. Gilts jumped 8.5 bp yesterday and may still have a way to go, and while Bunds are likely to outperform again, peripherals may feel the pressure from a fresh wave of geopolitical tensions. Today’s local calendar is pretty quiet, with only Eurozone trade numbers.

US reports: revealed big Harvey-boosts for August CPI and weekly initial claims, with Irma-boosts still in the pipeline. For CPI, we saw big gains of 0.402% for the headline and 0.248% for the core, with hurricane-boosts via a 2.8% energy price rise and a 4.4% spike for lodging away from home, with additional firmness across the major components. For claims, we saw a 14k drop to a lofty 284k, after a 62k Harvey-surge to 298k at the start of the month that included a 52k surge in Texas. It is expected that Irma will lift next week’s claims by 26k to 310k, as a Florida surge is partly offset by a Texas drop-back. Since Irma struck during the BLS survey week, a 100k hurricane hit to the September nonfarm payroll figure is anticipated that leaves a 90k rise.

UK: The pound has seen little bounce following the spike-rally in the wake of the BoE’s laying of the groundwork for a rate hike, the first time the Old Lady has done this in a decade. The last time the BoE hike rates was in July 2007, when it lifted the repo to 5.75% from 5.50%. Now, following a once-in-a-lifetime financial crisis and a status-quo disrupting vote to leave the EU, the BoE is at long last set pull on the rate hike lever again, in this case to reverse last August’s so-called post-Brexit vote “emergency” cut by lifting the repo rate to 0.50%. Up until last week, the consensus had been for the BoE to remain on hold through to 2019. The pound is expected to will remain bid for now, given this backdrop,however there is a general concern given the risk of bad news from the Brexit front. Former BoE governor, Mervyn King, who was a Brexit advocate, warned that the UK was likely to fall out of the EU without a new trading deal in place.

Main Macro Events Today                

  • US Retail Sales – Retail sales are pegged to rise 0.1% headline in August vs 0.6% in July, though ex-autos may increase 0.5%  indeed, there is some downside risk, as Harvey has already shown up in lower auto sales. The Empire State index is expected to dive to 18.2 in September from 25.2 in August,
  • US Industrial Production & UoM Sentiment – The Industrial Production may sink 0.1% in August; capacity use may accordingly dip to 76.8% from 76.7%. Preliminary Michigan sentiment may bounce to 95.1 in September vs 96.8 in August and business inventories are seen rising 0.2% in July vs 0.5%.
  • MPC Vlieghe Speech – MPC Member Vlieghe is due to speak about UK Economy and monetary Policy at the Society of Business Economists’ Annual Conference, in London, at 8:50 GMT.

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Andria Pichidi

Market Analyst

HotForex

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