What’s been happening?

Pound Sterling – UK Markets 

According to the UK’s Office for National Statistics, after declining £3.9 billion in July, public sector net borrowing in August came in at £6.8 billion to surpass the analysts’ estimate of £2.850 billion. “Borrowing (Public sector net borrowing excluding public sector banks (PSNB ex)) in August 2018 was £6.8 billion, £2.4 billion more than in August 2017; this was the largest August borrowing for two years (since 2016),” the ONS noted in the publication. Meanwhile, in its Quarterly Bulletin, the BoE refrained from commenting on the near-term monetary policy outlook. Regarding the concerns over a slowdown in the global economic activity, “developments in world activity can spill over to UK gross domestic product (GDP) growth both through trade and non-trade linkages. World GDP growth is, therefore, a key input into the Monetary Policy Committee’s forecast,” the BoE said. Markets, however, ignored these fundamental headlines and stayed focused on the Brexit developments.

Following the Salzburg summit, British Prime Minister Theresa May delivered a statement on Friday to inform the public on the Brexit negotiations. In a more addressive tone, May said that anything that fails to respect the referendum and effectively divide the UK would be a bad deal and added that a ‘no deal’ would be better than a bad deal. Ahead of May’s appearance, in an interview with BBC 2, British Brexit Secretary Raab noted that the European officials' behaviours at the summit was not "very statesmanlike," and added that Mrs May was treated poorly during the talks. Reacting to May’s remarks, the pound sterling weakened against its rivals and erased all of the gains it recorded against both the euro and the dollar throughout the week. The weekly CFTC Commitment of Traders (COT) report showed that the GBP shorts rose to its highest level since May of 2017 at £79.3K to suggest that investors are still not convinced an orderly Brexit deal is on the horizon.

US Dollar – US Markets

The IHS Markit Flash U.S. PMI report on Friday revealed that the business activity in the manufacturing sector in September expanded at a more robust pace than expected while the service sector lost momentum. The Manufacturing PMI came in at 55.6 compared to the market expectation of 55, and the Services PMI fell to 52.6 from 54.8. 

“With storms hitting the east coast, it was no surprise to see some disappointing survey data in September, with the flash PMI indicating that the pace of economic growth slipped to its lowest for almost one-and-a-half years,” Chris Williamson, Chief Business Economist at IHS Markit, noted and added: “However, business activity remained encouragingly resilient during the month, commensurate with third-quarter GDP growing at an annualised rate approaching 3%.” With no other macroeconomic data releases from the U.S., the US Dollar Index, which tracks the greenback against a basket of six major rivals, closed the day modestly higher boosted by the strong gains the dollar recorded vs the pound sterling.              

Euro – European Markets

According to the IHS Markit, the manufacturing sector in Germany lost momentum with the PMI dropping to 53.7 in September from 55.9 to fall short of the experts’ estimate of 55.7. On the other hand, Services PMI improved to 56.5 from 55. “The service sector was left to do most of the heavy lifting in September, as manufacturing put in its worst overall performance since August 2016. Service providers enjoyed the biggest boost to new business in over seven years in a further sign of strong domestic demand. Manufacturing new orders, however, were broadly flat as export sales declined for the first time in more than three years,” Phil Smith, Principal Economist at IHS Markit said.

The IHS Markit’s PMI report for the euro area painted a similar picture. “A near stagnation of exports contributed to one of the worst months for the Eurozone economy for almost two years,” Chris Williamson, Chief Business Economist at IHS Markit noted and elaborated: “Thankfully, the slowdown was limited to manufacturing. A buoyant service sector, boosted in part by domestic demand being supported by strong job gains, means the survey data are running at a level indicative of the economy growing by a solid 0.5% in the third quarter.” 

What’s coming up? 

UK: The only data from the UK on Monday will be the CBI Industrial Trends Survey (Orders). Furthermore, the Financial Policy Committee Statement, which includes a detailed analysis of the financial system and an assessment of potential risks to financial stability, will be looked upon for fresh impetus.  

US: The Chicago Fed’s National Activity Index and the Dallas Fed Manufacturing Business Index will be featured in the U.S. economic docket.  

EU: Germany’s CESifo Group will publish the business sentiment report that includes Expectations, Current Assessment, and Business Climate Indexes for September.