It has been a tumultuous 24 hours for financial markets, with global equities under pressure following the release of weak PMI data across the world, disappointing unofficial US labour market data, the United States’ imposition of tariffs on imports from the EU and ongoing concerns about US-China trade tensions and Brexit. The S&P 500 has dropped 2.5% in the past two sessions and is currently down a further 1% today. The FTSE yesterday suffered its biggest one day fall since January 2016, shedding 3.2%.
The Dollar has remained range-bound for the third consecutive session but volatility in the Euro and in particular Sterling has spiked. The Euro came under moderate pressure this morning after the release of revised Eurozone PMI data for September for the services sector (51.6 versus 52.0 in preliminary reading) and the economy as a whole (50.1 versus 50.4). The EUR/USD cross temporarily fell to around 1.094 but has in the past 10 minutes (15:20) shot up to near 1.10.
Similarly, Sterling was knocked back after the release of very weak services PMI data, with the index falling to a six-month low of 49.5 in September from 50.6 in August. The fall in the manufacturing, construction and services PMIs in Q3 has increased the odds that UK GDP contracted in Q3 after a 0.2% qoq fall in Q2 and that the UK economy was thus in recession.
However, GBP/USD – which had slumped to as low 1.227 – bounced back a full-big figure following Prime Minister Boris Johnson’s speech in parliament at lunchtime. He outlined to members of parliament the alternatives to the Irish backstop which he had yesterday officially put forward to the EU, which markets appear to have interpreted favourably. Perhaps surprisingly GBP/USD has pushed higher to 1.24 despite the European Parliament stating that Boris Johnson’s Brexit plan was unacceptable and
Irish Prime Minister Leo Varadkar expressing concerns about the UK’s news Brexit plan. The next few days could prove critical in terms of the odds of Boris Johnson being able to present to Parliament a new Brexit deal acceptable to both the EU and a majority of MPs.
