IFX Market Report
Friday 6th October 2017

Market Report

Following the calamitous Conservative party conference, Theresa May’s leadership of the party is now in jeopardy as former party chairman Grant Shapps has called for a leadership election and since yesterday has got 30 signatures calling for the PM to stand down.

The conference speech was meant to reaffirm her position as party leader and provide certainty on Brexit negotiations, but a combination of coughing fits, collapsing back drop and an unwelcome heckler renewed jitters about her ability to lead the party and with it sent sterling tumbling.

The pound is on course for its worst week in a year against the US dollar opening at 1.3236, the pound pretty much fell throughout the day closing at 1.3131. Further declines were seen overnight and GBPUSD currently trades at 1.3070.

By the time the London markets opened yesterday, GBPEUR had already fallen half a cent and continued to fall to 1.1197 in the afternoon. The pair saw a slight reversal as the day progressed and went on to close at 1.1217. However, like Cable, we have seen overnight declines as GBPEUR currently trades at 1.1177, the lowest since 14th Aug.

Worldwide News

Following Wednesday’s positive European PMI data releases, data out of Germany yesterday disappointed as Construction PMI fell to 53.4 in September from 54.9 in August marking the weakest expansion in the construction sector since January.

The minutes from the ECB policy meeting held earlier in the month revealed the members are concerned about weak inflation and strong currency. Any changes in monetary policy need to be gradual and the leave the central bank with enough flexibility to make changes if the Eurozone economy requires.

In the US, exports rose by 0.4% to the highest level in 2 ½ years, while imports fell slightly by 0.1% meaning the overall trade deficit narrowed to $42.4bn in August from $43.6bn in July.

New Factory Orders beat estimates coming in at 1.2% versus 1.0% after a disappointing -3.3% in July.

The dollar is set for its 4th week of gains as strong data reinforces the views that markets may have under estimated the number of interest rate rises in coming months. Currently, most believe there will be 1 in December and 2 or 3 next year. However there is a growing number of Investors who have trimmed short bets. This view is reinforced as Oxford Economics put a 40% chance that the hawkish Fed candidate Kevin Warsh will replace Janet Yellen in February.

EURUSD opened close to the high of the day at 1.1774 and as dollar buying resumed, the pair fell to 1.1705. Overnight the pair fell to 1.1688, the lowest it has been since Aug 17th.