Market News & Insights
13 October 2016

3 Hawks in a Pear Tree

Overnight we had disappointing trade data from China which showed their exports sliding 10% in the month of September, to their lowest level in 6 months. This resulted in the yuan dipping to 6.7277 against the dollar as the central bank set a weaker mid-point for a seventh session in a row. With Chinese exports continuing to under deliver, further adjustments for the CNY maybe ahead for the coming quarters. Also on the back foot this morning were oil prices after OPEC stated that production had risen to the highest level in eight years. Prices for the black gold remain ever important with it being one of the main factors on an economies inflation, a drop back towards $40 a barrel may well cause central banks to rethink their current policies. Closer to home and we open this morning with European stocks and the FTSE 100 lower after minutes from the US Fed for the September meeting raised expectations of a December interest rate hike.

Overnight, minutes from the last Federal Reserve policy meeting were released. At that meeting, 3 of the 10 voting members voted for a rate hike and the minutes showed that several members felt that a rate hike would be justified “relatively soon” if the US economy continued to strengthen but doubts on inflation remained which at 1.7% is still below the target of 2%. Since the meeting, the Fed Chair Janet Yellen and a number of other members have reiterated that they see a rate hike before the year end if inflation and the labour market continue to strengthen. While we have CPI out on the 18th, the Federal Reserve’s preferred measure, the Personal Consumption Expenditure (PCE) Price Index is released on the 31st October and is keenly awaited by the markets which currently have a 70% probability of a rate hike priced in for December.

Sterling continued to struggle across the board on Wednesday despite lifting up from the fresh 31 year lows recorded on Tuesday. Theresa May was facing her first government defeat over the motion yesterday as Conservative MPs were prepared to vote with Labour to make sure there was a lengthy debate over the Brexit negotiation strategy. Labour are demanding 170 questions to be answered on key issues such as immigration and access to the single market. As a result, further uncertainty began to undermine sterling yet again, pushing the pound back down to 31 year lows against the US dollar and 6 year lows against the euro.