Trade and Brexit headlines continue to dominate

Summary:

• US stocks jump on Trump tweet

• US CPI misses estimates

• Pound spikes higher on upbeat joint statement

• UK data remains soft but recession highly unlikely

There was a swift move higher in stocks this afternoon after Donald Trump took to Twitter with the following post: "Big day of negotiations with China. They want to make a deal, but do I? I meet with Vice Premier tomorrow at The White House". There’s two main points to take away from this message; 1) Trump claims China want to make a deal and 2) Perhaps more importantly the Vice Premier is staying around till tomorrow. Earlier reports that he would leave this evening were taken to suggest no agreement would be reached but this goes against that school of thought. ..

A batch of data from across the pond caused a spike in volatility ahead of the forthcoming US session and while it is not as important as trade developments it is worth noting. The most noteworthy release comes on the inflation front with the CPI indicating a lower than expected level of price pressures while the latest unemployment figures remain strong. The data was as follows:

• September CPI Y/Y: +1.7% vs +1.8% exp. +1.7% prior

• CPI ex food and energy Y/Y: +2.4% vs +2.4% exp. +2.4% prior

• Average weekly earnings : +0.9% Y/Y vs +1.1% prior

• Initial jobless claims: 210k vs 215k exp. 219k prior

A joint statement from Boris Johnson and his Irish counterpart Leo Varadkar has seen a spike higher in the pound. While the message was fairly vague the line that both parties “agreed that they could see a pathway to a possible deal” has been pounced on by the markets and GBP is enjoying a solid day of gains. 

The most recent GDP readings from the UK have shown a contraction in month on month terms but taking a step back and looking at the bigger picture it doesn’t appear quite so bad. The August decline in m/m terms can be explained away by an upwards revision to an already strong July reading and a rolling 3-month average showed an increase of 0.3%. Following the contraction seen in the second quarter this means that another negative reading for Q3 is not at all likely, although growth remains tepid at best. The ONS also stated that they have received no anecdotal reports of Brexit preparations affecting the August metric. 

While it may not make the same headlines as the GDP read, the latest manufacturing and industrial production reads perhaps offer greater insight into the health of the UK economy here, with sharp contractions seen in each coming as another warning sign.