38 LEGISLATIVE BODIES TO PERSUADE
The news that Wallonia stopped the progress of Canada’s economic and trade agreement caused concerns over the Channel. A free trade agreement with the European Union may not be as easy as previously thought, While there are 27 member states who all have to approve any deal, in practice that actually means 38 legislative bodies need to sign off. In addition, the European Union is preventing any preliminary (pre Article 50 trigger) negotiations.
STERLING BOOSTS UK EXPORTS
The latest Confederation of British Industry’s Industrial Trends Survey showed that the UK’s export volumes grew at their fastest pace for two and a half years in the three months to October, due to the Pound being almost 20% weaker versus the US Dollar. The growth among EU markets was at its fastest pace since the series began in 2000. Export orders are expected to rise further over the next three months despite concerns over the potential skills shortage that could restrain growth.
EUROPEAN INTEREST RATES UNCHANGED
The European Central Bank kept its key refinancing rate unchanged at 0.00%. The deposit and marginal facility rates that also remained unchanged at 0.4% and 0.25% respectively. These are all in line with consensus. The accompanying press release was a carbon copy of September’s document repeating the intention that Quantitative Easing will run until the end of 2017 or beyond if necessary. Consensus meanwhile is pointing heavily to an extension past this date, with an announcement likely in December.
DIVERGING INDICES PUBLISHED
Germany and France, the two powerhouses of the Eurozone economy, posted diverging Purchasing Manager Index (PMI) numbers on Monday morning. French PMI numbers dipped slightly in October to 52.2 from 52.7 in September, and below the consensus 52.8 as the manufacturing increased was marred by a deterioration in services. Germany on the other hand posted a PMI of 55.1, which was well above the consensus of 53.3. This was mainly due to a rebound in services PMI. Overall the PMI for the Eurozone as a whole was positive, rising to 53.7, above the consensus 52.8.
Our allocation to Sterling exposure increased as we took profits on our US Dollar and Japanese Yen positions. However, we still have an overweight allocation to ‘other’ currencies that include Hong Kong Dollars (which are pegged to the US Dollar), Swiss Francs and Scandinavian currencies.
Meanwhile our limited exposure to short duration Fixed Income instruments means our portfolios are not suffering from the market’s wobbles, while our inflation notes have begun to perform. The positive impact from these comes about two months after we expected them to kick in. The market appears to be particularly myopic on the inflation trend, only pricing in any increases after the release of data and despite the number of forecasts to the contrary.
THREE ANNOUNCEMENTS DUE THIS WEEK
25 October – Germany ifo Business Climate // 27 October – UK GDP Growth Rate // 28 October – US GDP Growth Rate.
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SOURCES: BLOOMBERG; 7IM