Yesterday morning Sterling fell to 1.2920 against the Dollar and 1.1470 against the Euro, continuing the Pound sell off that started on Friday. The latest BBA mortgage approvals data was slightly weaker than expected with a decline to 37,000 in August from the previous month’s 37,700 - the lowest reading since the beginning of 2015. The data maintained underlying worries surrounding the housing sector, although the overall impact was limited.
There were further concerns surrounding EU Brexit negotiations, especially with further evidence of a tough stance being taken by the other EU member states which will make it difficult for the UK to secure a favourable deal. Weakness in energy prices and European equities have also hampered Sterling’s efforts.
The German IFO index was stronger than expected with an increase to 109.5 for September from 106.3 the previous month. The September figure was the strongest reading since May 2014.
There are growing concerns surrounding Deutsche Bank’s plight after the US announced a record $14Bn fine for the bank causing shares to plummet. The falling price was exacerbated by rumours that Angela Merkel has ruled out state aid. With the Italian banking sector also in difficulties, risk appetite will be eroded causing flight to safe havens.
In a speech yesterday, European Central Bank (ECB) President Draghi maintained his stance that the central bank would take additional action of monetary policy if warranted, while reiterating his call for governments to take stronger action to boost growth.
The US new home sales data was slightly weaker than expected with an annual rate of 609,000 for August from a revised 659,000 previously, but the August number was still the second strongest reading since the 2008 financial crash.
Richmond Fed President Lacker stated that he thought the case for a September rate increase was strong, given labour market strength and clear evidence of rising wage pressures. Dallas head Kaplan stated that he would have been comfortable with a rate increase, but Minneapolis President Kashkari was more dovish stating that it was correct to hold rates. The Dollar remained on the defensive on Monday with a gradual decline against major currencies, bar Sterling.
Data to watch: 1pm US House Price Index. 2.45pm US Flash Markit Services & Composite PMI (Sep), September Consumer Confidence. 4.15pm Fed’s Stanley Fischer speech.
Posted in Daily Market News on Sep 27 2016