UK final Q2 GDP printed -0.2% in line with the previous estimates, confirming the economy contracted, but the data still outperformed consensus forecasts. Services sector data shows a drop to the weakest rate in three years, and worsening performance from the manufacturing sector and investment has stalled. Sterling peaked at 1.2346 on the Dollar before falling back to the start at 1.2290
Overnight reports emerged that Boris Johnson will submit formal proposals for a Brexit deal within the next 24 hours. Early indications of the plan are that Irish Backstop will go, replaced by a single ‘all-Ireland’ regulatory space for agriculture and food. The EU’s Michel Barnier states ‘a substantial shift in the UK position is required” and that he doubts the Prime Minister will have parliamentary backing for the deal. Further details are expected in closing speeches at the Conservative party conference tomorrow. UK Manufacturing PMI data lands at 09:30 am.
The POTUS and other factors continue to put pressure on the US Federal Reserve Bank to cut rates again in Q4. Cutting rates, when combined with ongoing trade tensions with China will lead to higher prices for consumers and businesses. If fuel prices go up on top of higher prices, it could lead to a monstrous stagflation situation. The last time the US economy wrestled with stagflation was about 40 years ago, and it caused economic hardship for many Americans.
The Euro is operating on slippery grounds, having registered it largest quarterly fall in over a year. The common currency dropped against the Dollar to 1.0885 yesterday from July’s opening rate of 1.1360. The drop can largely be associated with the German recession fears and the ECB’s dovish expectations. The central bank cut rates by 10 basis points last month and is scheduled to restart bond purchases from Nov. 1.
The Eurozone Consumer Price Index is due for release this morning and is expected to show the cost of living in the currency bloc rose in September.The Euro could regain some poise if the inflation numbers beats estimates. As of writing, the Euro against the Dollar is trading at 1.0890.
Data to watch
09.30 GBP - Manufacturing PMI
10.00 EUR - CPI
15.00 USD - ISM Manufacturing PMI
Posted in Daily Market News on Oct 1 2019