What’s been happening?

Pound Sterling – UK Markets 

The report published jointly by the IHS Markit and the CIPS on Tuesday showed that the business activity in the construction sector in the UK expanded by its slowest pace in six months in September with the PMI figure easing to 52.1 from 52.9 compared to the market expectation of 52.5. Commenting on the report, “This tale of feast and famine offers little in the way of reassurance and is more about holding on to stable growth than a sprint to the finish. The weakest overall activity in six months shows that caution and Brexit concern remain roadblocks to strong growth,” Tim Moore, Associate Director at IHS Markit, said.

Meanwhile, while speaking to reporters on Tuesday, British Prime Minister Theresa May reiterated that they were working toward a good Brexit deal that would bring frictionless trade and added that it was not in the national interest to have a general election. Touching on the Irıish border issue, May stated that the UK would put forward Irish border proposals ‘that work.’ Additionally, in an interview with CNBC, British Foreign Minister Hunt argued that the EU’s attempts to punish the UK would ‘in fact turn in favour of the UK government.’

Later in the day, speaking at the Conservative Party annual conference, Brexit Secretary Dominic Raab argued that the Irish border was a substantial issue in negotiations, but it was overblown for political purposes. Regarding the EU’s approach to the Chequers plan, “if Chequers is off the table from the EU’s point of view, then lots we were offering that is off the table for the EU too,” Raab stated. Although Brexit headlines helped the pound sterling recover some of its losses that it suffered following the disappointing PMI data, it still closed the day weaker against both the euro and the dollar. 

US Dollar – US Markets

The ISM New York’s latest report revealed that the headline Current Business Conditions Index of its New York City Report on Business fell to 72.5 in September from 76.5 in August. However, the Six-Month Outlook Index rose to its highest level in nine months 81.5 while the Employment Index reached a record-high at 73.8 in the same period to offset any potential negative impacts of the disappointing headline number. The US Dollar Index, which measures the value of the greenback against a basket of six foreign currencies, rose to a fresh monthly high at 95.74 before retreating to the 95.50 area toward the end of the day.

Speaking at the 60th Annual Meeting of the National Association for Business Economics, FOMC Chairman Jerome Powell argued that the global picture was still positive despite the emerging-market risks and repeated that they haven’t yet seen any adverse effects from the Trump administration’s trade policy. Regarding the policy outlook, “our ongoing policy of gradual interest rate normalisation reflects our efforts to balance the inevitable risks that come with extraordinary times, so as to extend the current expansion while maintaining maximum employment and low and stable inflation,” Powell explained.

In accordance with the Fed’s hawkish stance, Federal Reserve Bank of Dallas President Robert Kaplan told reporters at an event in Texas that he was comfortable with one more rate hike this year and argued that the Fed needed to assess the situation after making at least two more rate hikes next year. "We should be moving toward a neutral stance, and at that point, we should be assessing where we should go from there – not a pause – I don’t know that I would agree with a pause, I’m not advocating a pause," Kaplan concluded.

Euro – European Markets

The Eurostat on Tuesday announced that the Producer Price Index in the euro area grew by 0.3% on a monthly basis in August following July’s 0.7% (revised from 0.4%) growth. On a yearly basis, the PPI came in at 4.2% to surpass the analysts’ forecast of 3.9%. Despite the upbeat PPI readings, the shared currency remained under pressure against the dollar as markets remained focused on the Italian budget crisis. The European Central Bank (ECB) policymaker and the head of the Bank of Finland, Olli Rehn, said that Italy’s budget deficit poses serious concerns as the ECB plans to normalise the monetary policy next year. Moreover, Austrian Finance Minister, Hartwig Loeger, stated that Eurozone ministers wanted the EU budget rules to be applied to Italy. 

What’s coming up? 

UK: The IHS Markit will publish the PMI report for the service sector of the UK. More importantly, British Prime Minister Theresa May will address the Conservative party in Birmingham on Wednesday.  

US: FOMC members Barkin, Brainard, and Mester will be delivering speeches on Wednesday. The ADP’s private sector employment report will be featured in the economic docket as well as the IHS Markit’s and the ISM’s respective service sector PMI publications.  

EU: The Eurostat will release the August retail sales figures alongside the IHS’s Markit’s Services, and Composite PMI reports.