The FTSE 100 is trading higher by a little more than 10 points this morning, with the market seeking to end a good week on the front foot. The Pound is also higher since last Friday against all its major peers despite the frustrating lack of progress in Brexit talks with the EU.
UK manufacturing hits 4-month high
A higher than expected reading in the UK manufacturing PMI data for August suggests that the rate of expansion in the sector is accelerating. A print of 56.9 was comfortably above the consensus forecast of 55.0 and the prior month’s reading also had an upwards revision to 55.3 thrown in for good measure. A closer look at the report shows that there was an expansion seen across all individual product categories with an acceleration in input price inflation, for the first time in seven months, being particularly positive for the pound.
Sterling has enjoyed a decent recovery in the past week and today’s data has seen the currency tick higher once more. The GBPNZD and GBPJPY crosses are the two biggest winners in the past five days amongst sterling pairs. GBPEUR has rebounded somewhat in recent sessions after hitting its lowest level in several years on Tuesday (barring the pound’s flash crash), whilst the GBPUSD has had a quiet week, trading in a narrow range ahead of today’s widely viewed US jobs data.
NFP to shrug off seasonal weakness?
Before the week is out, we have one of the highlights of the economic calendar for the month of September with the US non-farm payrolls report (NFP) scheduled to be released at 1:30pm (BST). The keenly followed jobs data is expected to show that 180k jobs were added in the US during the month of August, which would represent a slight drop on the 209k seen previously but still indicate that the labour market is in rude health. Wednesday saw the ADP employment change, a private equivalent seen by many as a precursor, smash expectations with a print of 237k including a significant upwards revision to the previous release. However, August has been seasonally weak for this data point with the month having the lowest average NFP reading this decade. Furthermore 16 of the past 20 August NFPs have been below consensus forecasts, meaning there has been a clear negative seasonality impact on the number.
The question is, which of these two forces will be the most accurate predictor of today’s release? The seasonality impact has some logic behind it with many people taking holidays during the month and therefore a drop-off in the number of new job placements shouldn’t come as too much of a surprise. Perhaps the most surprising aspect of this streak of negative surprises is that analysts have failed to realise the propensity for lower employment numbers in August and subsequently revise lower their forecasts. Having said that, the recent data may well be seen to give a better handle on today’s release and even a weak print may be dismissed by traders somewhat as simply an outlier due to seasonality.
USD trading close to key level ahead of release
The US dollar has endured a torrid time this year with a near constant depreciation seen in the greenback. A trade-weighted USD index hit its lowest level since January 2015 earlier this week, with the bounce seen since further reinforcing the technical support level around the 91.50-92.00 zone. A weak employment report, not just in the headline but also in terms of wage growth, could see another attempt by dollar bears to break below this key level and should the market end the week beneath there then the scope for an acceleration of the sell-off and further declines increases. Alternatively, a strong print (180k+) alongside a continuation of the recent rise in the pace of wage growth could provide the catalyst for a recovery in the beleaguered buck.