Last Week’s UK Economic News Review

Sterling lost sharply against the U.S. Dollar and Euro last week, as UK Prime Minister Theresa May outlined her plan for the country’s exit from the European Union, announcing at the ruling Conservative Party’s annual conference that she will initiate formal talks on the UK’s exit of the EU by the end of March of 2017. Negotiations could last as long as two years and would have the UK’s leaving the EU by April of 2019.  

French President François Hollande later made comments to the effect that the United Kingdom would need to “suffer” in order for its Brexit vote to continue to ensure unity within the European Union. Sterling apparently flash crashed in response to reach a level not seen in more than three decades in thin Asian trading, possibly due to a “fat fingers” error or the influence of large-scale electronic trading. Cable reportedly fell as far as 1.1451 from over 1.2600 in a few minutes near the open of Friday’s Asian trading session during the crash, although it had recovered most of its losses upon the London open to trade above 1.2400 again.

PMI numbers were the focus of UK economic data last week, beginning on Monday with Manufacturing PMI, which printed at 55.4 versus 52.1 expected. On Tuesday, Construction PMI showed a reading of 52.3 versus 49.1 expected and on Wednesday, Services PMI came out at 52.6 versus 52.1 anticipated. The week concluded with Friday’s release of Manufacturing Production, which increased +0.2% m/m versus +0.4% expected and the Goods Trade Balance, which showed a deficit of -12.1B versus an expected -11.1B.

The U.S. economic calendar was again moderately busy last week, beginning on Monday with ISM Manufacturing PMI, which showed a reading of 51.5 versus 50.4 anticipated. On Wednesday, ADP Non-Farm Employment Change came out at 154K versus 166K expected and ISM Non-Manufacturing PMI, with a print of 57.1 versus an expectation of 53.1.

Thursday had Weekly Initial Jobless Claims, which showed 249K new claims last week compared to an expectation of 255K. The number was just 1K over the lowest level the number has seen in ten years made in April. The week concluded with Friday’s release of Non-Farm Payrolls, at 156K compared to an expected 171K with the previous number upwardly revised from 151K to 167K. Also, Average Hourly Earnings held steady at +0.2% m/m, in line with expectations and the Unemployment Rate, which increased to 5.0% from 4.9%.

The Eurozone economic calendar began on Monday with Spanish Manufacturing PMI, which printed at 52.3 versus 51.6 expected. On Tuesday, ECB chief economist Peter Praet noted that, the ECB will preserve its accommodative stance until inflation returns to our aim.” Wednesday saw the ECB indicate that it would taper its bond buying program before March of 2017, when it is due to end.

On Thursday, the ECB’s Monetary Policy Meeting Accounts noted that, “It was underlined that the projections were based on exceptionally supportive financing conditions, which to a large extent reflected the ECB’s accommodative monetary policy.”

Overall, GBP/USD began the week at 1.2916 and concluded the -3.7% lower to close at 1.2432, while EUR/GBP increased from 0.8690 to close the week +3.6% higher at 0.9002.

Key UK, U.S. and Eurozone Economic Data Releases for the Coming Week

GBP: The economic calendar for the United Kingdom remains quiet this coming week. The calendar only features the BOE Credit Conditions Survey, which is due to be released on Friday.

USD: The economic calendar for the United States remains rather active this coming week. After Monday’s Bank Holiday, its highlights commence on Wednesday with a talk by FOMC Member Dudley, in addition to JOLTS Job Openings — for which a 5.79M result is anticipated —and the release of the FOMC Meeting Minutes. On Thursday, the market is expecting the release of Weekly Initial Jobless Claims and Import Prices that are due out at 252K and 0.10%, as well as Crude Oil Inventories for which the last result was -3.0M. On Friday, Core Retail Sales, PPI, Retail Sales, Core PPI and the Preliminary University of Michigan Consumer Sentiment survey are due out at 0.40%, 0.20%, 0.60%, 0.10% and 92.1 respectively. In addition, FOMC Member Rosengren and Fed Chair Yellen will give speeches. 

EUR: The Eurozone’s economic calendar cools down considerably this coming week, only featuring the German and EZ ZEW Economic Sentiment surveys that are due out at 4.2 and 6.3 respectively on Tuesday.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: lower
Resistance: 1.2996/1.3020, 1.3119/1.3227 and 1.3272/1.3371.
Spot Rate: 1.2409
Support:  1.2914/44, 1.2849/64 and 1.2794.

EUR/GBP weekly forecast: higher
Resistance: 0.9082/0.9147, 0.9411 and 0.9485.
Spot Rate: 0.9016
Support:  0.8769/0.8814, 0.8679/0.8724 and 0.8419/0.8590.