Market movers today
Markets will keep a close eye on Theresa May’s speech on Brexit in Florence this afternoon, where she will outline the details of the UK’s negotiating stance after the UK formally leaves the EU at the end of March 2019. Yesterday, parts of May’s speech was already leaked and among other things it was confirmed that May will propose a two-year transition period after Brexit takes effect, see Bloomberg for more.
Today, we have a busy data calendar, not least with PMI figures released in Germany, France and the euro area. We expect euro area manufacturing PMI to remain strong, but moderate slight ly to 57.2 in September, as the euro appreciation is bound to drag on export orders eventually, despite activity so far remaining strong. We look for a similar decline in the Service PMI due to weaker signals from the new orders component in the last reading, and forecast service PMI at 54.2 in September.
The market will also have plenty of ECB speeches to digest as Mario Draghi, Benoît Coeuré and Vítor Constâncio are all scheduled to speak.
In the US, Markit PMI manufacturing is due to be released, which we estimate will show a further increase given the recent large disparity between ISM manufacturing and Markit PMI manufacturing (58.8 versus 52.8). Again, however, numbers might be somewhat skewed due to the impact of the recent hurricanes.
Selected market news
Risk sentiment took a small hit yesterday as tensions with North Korea increased again. Equit ies as well as bond yields declined and the JPY st rengthened.
The North Korean leader responded to US President Donald Trump’s speech in UN where Trump threatened to dest roy North Korea totally. Kim Jong-un called T rump ‘mentally deranged’ in a rare statement rare directly from the North Korean leader , and vowed to make Trump pay dearly. He said Trump’s comment s had confirmed his nuclear programme was the ‘correct path’ and also st at ed t hat ‘we will consider with seriousness the exercising of a corresponding, highest level of hard-line count ermeasure in hist ory’, see South China Morning Post. Kim’s foreign minister said t o report ers t hat t hese measures could include t esting a hydrogen bomb in the pacific. Yesterday, Trump announced new financial sanctions targeting North Korea. Trump also said that Chinese President Xi Jinping had ordered Chinese banks to cease conduct ing business with North Korean entities. Trump praised Xi, calling t he move ‘very bold’ and ‘somewhat unexpected’.
Yesterday, the US Philadelphia Fed manufacturing index pointed to continued strength in US manufacturing. The index increased from 18.9 in August to 23.8 in September (consensus 17.1). Details showed a decent rise in the orders index as well.
