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Elon Musk is promising to reduce travel anywhere on earth to less than an hour and make off-planet travel a reality. Meanwhile, the Little Rocket Man is promising devastation within 15 minutes: how quickly can we board, Elon? Hopefully a little faster than Ryanair, unless you bring your own pilot – although Monarch might have inadvertently helped with their pilot shortage this morning. Personally, I am becoming quite keen on the off-planet option, what with all the problems on our dear planet.
Trump began the weekend promising to sort Little Rocket Man out and ended it with a rather lame “Negotiating with North Korea is a waste of time”. At least we can breathe a sigh of relief that neither party did anything but posture, and no mushroom clouds were seen on the horizon.
European politics is a different matter, with proverbial mushroom clouds looming in Spain; while other Western democracies seem intent on self-harm. Distressing scenes emerged from yesterday’s illegal Catalan independence referendum, with young women being dragged by their hair and elderly people suffering excessive force and injury. Rubber bullets in the EU?! Carles Puigdemont will almost certainly declare unilateral independence, and the Spanish authorities will no doubt react strongly. Further north in Germany, Angela Merkel has the invidious task of negotiating yet another coalition government, in the knowledge that her position has been substantially weakened and the far-right Alternative Fur Deutschland has officially arrived in parliament. On the domestic front the noises from Labour are increasingly worrisome, with promises that would take us back to the 1970’s - a trip I would rather avoid. And the Conservative conference? Less than inspiring!
On the subject of rockets, which rocket is Mark Carney on? He issued a statement at the end of last week confirming that an interest hike is likely in the “relatively near term”. I’m not sure that this is appropriate at a time when the UK economy annual growth rate has been revised down for a second quarter and the uncertainties surrounding Brexit continue to leave investors and businesses with healthy doses of uncertainty. Despite GBP/USD having advanced as high as 1.3594 on 15 September, it has since retraced to a level of 1.3280 at the time of writing; it seems markets were more inclined to put their faith in the hard data rather than the Delphic utterances of a central banker.
Across the pond, Janet Yellen’s statement that policymakers ought to be careful of “moving too gradually” on monetary policy despite “significant uncertainties” over inflation dynamics has the market pricing in an 82% chance of a December hike in Fed funds. The USD continues to correct after months of weakening, with EUR/USD now trading at 1.1742. Trump’s much-anticipated tax reforms look set for further delays and are bound to be watered down quite significantly before getting through Congress, with his own party divided and the Democrats hostile.
Mario Draghi, on the other hand, continues to tiptoe around the issue of monetary policy accommodation, pointing out that recent exchange rate volatility has made the inflationary picture particularly hard to read. Expectation continues to mount that the ECB will taper its €60bn monthly stimulus programme by the end of 2017.
Further south, Africa’s most industrialised nation, South Africa, is increasingly applying pressure to those responsible for state capture and corruption, albeit at the civil society and private sector level, if not yet at government level. International companies have been feeling the heat, with both reputation and brand value at risk as Bell Pottinger has collapsed and a number of other large international corporates are desperately trying to shore up their tattered reputations. The ratings agencies are now looking to the mini budget announcement later this month, with the likelihood of another downgrade firmly on the cards and no sign of a cohesive plan to address declining growth and competitiveness and State Owned Entities completely out of control. The Rand looks set for further weakening, although it failed last week to sustainably break through the psychological 13.6000 level. It currently trades at 13.6416.
Brent crude, having clawed its way higher to the $57 level last week, is heading lower again. It is currently sitting at 56.63 and looking for direction in terms of the Iraqi Kurdistan general election, with a reported 92% favouring independence from Iraq. The market was hoping for OPEC and Russia to announce a further extension to the production cuts, but was disappointed. OPEC and the International Energy Agency are seeing further demand growth for 2017 and 2018.
In terms of data this week, we have already seen September manufacturing PMI for the UK, which came out this morning at a slightly disappointing 55.9, against expectations of 56.2. This suggests that last week’s downward revision of Q2 GDP growth from 1.7% to 1.5% year on year may well set the tone for Q3 too. However, it is the services PMI which is the crucial figure (indeed services is the only sector growing at the moment) and this is released tomorrow, expected unchanged month on month at 53.2. Disappointment here would put downward pressure on sterling and make Mark Carney’s recent hawkish comments seem (not for the first time) somewhat out of kilter with the real economy.
The main data releases of the week will be those pertaining to the US labour market on Friday. Non-farm payrolls are expected to have increased by just 85k in September after August’s rise of 156k. Meanwhile, the unemployment rate is expected to have remained at 4.4%. As usual, significant deviation from expectations will move the markets – particularly if the data are weaker than expected, given Janet Yellen’s hawkish tone of late.
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