09 Sep 2019
“Markets are currently suggesting a 30-50% probability of a hard Brexit. If we see a further sell-off in sterling, it is possible to see parity with the euro. That’s not a totally unreasonable assumption if we believe that the sell-off thus far could be mirrored again.
“The situation at the Bank of England will unfold with the inflation profile. Interestingly, we have seen the inflation markets in the UK anticipating a more severe outcome. Expected inflation has gone up in the UK, while it’s gone down year on year in the US. The Bank of England is certainly in a very tough spot.”
Sterling volatility: The pound slumped as Prime Minister Boris Johnson prorogued parliament, giving it just five days to prevent a ‘no deal’ Brexit on 31 October. However, it recovered slightly when MP Phillip Lee defected to the Liberal Democrats, ending Johnson’s parliamentary majority.1
Eurozone inflation (August, flash), unemployment rate (July): Consumer prices in the eurozone rose by 1% in the year to August, unchanged from a month earlier. Inflation has consistently been below the ECB’s target of 2%.2
Eurozone Markit Manufacturing purchasing managers indices (PMI) (Aug): Manufacturing PMIs in the Eurozone improved on July’s six-and-a-half year low, but remained firmly in contraction territory. They rose 46.5 in July to 47.0 in August.3
UK PMI manufacturing (Aug): At 47.4 in August, down from 48.0 in July, UK manufacturing fell to its lowest level since July 2012. This was driven by a notable contraction in new work, which decreased to the greatest extent in 85 months.4
British Retail Consortium retail sales: The British Retail Consortium called on the government to help the retail sector through an “unprecedented period” of technological transformation. Like-for-like sales in August fell by 0.5% compared with a year earlier in spite of a rise in food sales.5
1 Pound volatile in further Brexit turmoil, BBC, August 2019
2 Sluggish eurozone consumer price growth pose headache for ECB, Financial Times, August 2019
3 Eurozone manufacturing slump continues in August, Steel Guru, September 2019
4 UK Manufacturing PMI at seven-year low as uncertainty stifles domestic and export market, The Independent, September 2019
5 Plea for action to save high street as sales stagnate, The Times, August 2019
UK services PMI (August): The services sector has been the strongest part of the UK economy, but is expected to fall to 51.1 from 51.4 in August.6
UK Industrial and manufacturing Production (MoM) (Jul): Both areas are expected to decline over the month as the UK’s political uncertainty weighs on activity. 6
UK wage and earnings: Employment levels have been the one bright spot in the UK economy. This is expected to continue with average earnings (ex bonuses) up 3.7% and unemployment steady at 3.9%.7
US services PMI (August, final): The US services sector is also expected to have shown weakness over the past month, with expectations of a fall to 50.9 from 53.6
6 Week ahead, IG Index, August 2019
7 Economic calendar, FX Street, August 2019
The opinions expressed are as of September 2019 and are subject to change at any time due to changes in market or economic conditions. The above descriptions are meant to be illustrative only.
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