Weekly Digest: GBP sinks, ISM on the Rebound, Jobs Report Disappoints

Oct 07, 3:48 pm
BoE_Sterling_GBP

The British pound saw renewed favor among the bears after British PM Theresa May said last weekend that the country was likely to start the Brexit negotiations as early as March 2017. The news sent the British pound sinking to 31-year lows. In the US, economic data this week showed a strong rebound with ISM surveys recovering from the fall in August. However surprisingly, September payrolls report fell short of expectations. Here’s a recap of this week’s events.

The Brexit trade is back

GBPUSD - Flash Crash on October 7
GBPUSD – Flash Crash on October 7

The British pound was back in the limelight this week as last weekend comments from PM Theresa May set the ball rolling for another bout of selling in the British pound. Speaking at her first Conservative Party conference as the party leader, the British PM announced that her government would trigger Article 50 of the EU treaty before the end of March 2017. She also announced that her government will introduce the “Great Repeal Bill” which will remove the European Communities Act from the statute book.

“This marks the first stage in the UK becoming a sovereign and independent country once again. It will return power and authority to the elected institutions of our county. It means that the authority of EU law in Britain will end,” the British PM said.

Pound sterling opened lower on Monday, understandably but the bearish momentum quickly gathered pace as rhetoric from both sides of the English Channel started driving the market sentiment. GBPUSD plummeted to fresh 31 year lows and by early Friday morning in the usually quiet and liquidity thin trading in the Asian session, GBPUSD fell to lows below $1.20 after the French PM, Francois Hollande made rather strong comments at a dinner event hosted by EU commission president Jean-Claude Juncker.

“The UK has decided to do a Brexit, I believe even a hard Brexit. Well, then we must go all the way through the UK’s willingness to leave the EU. We have to have this firmness,” Hollande said.

Gold prices are down over 4.50% this week

Gold prices attempting to rebound off $1250 support
Gold prices attempting to rebound off $1250 support

The price action in gold prices this week was another big surprise as the precious metal, seen as the best performing asset this year lost over 4.50% by Friday morning. The declines in the yellow metal came despite the Brexit headlines. Gold prices swiftly broke down below the $1300 price level, shedding over $43 by Monday’s close and posting a weekly low at $1250.01 at the time of writing.

The decline in the precious metal was attributed to strong hawkish rhetoric from some of the FOMC members and also a surprising rebound in US economic indicators. However, the precious metal was seen recovering on Friday after the jobs report came out weaker than expected.

US data on the rebound

ISM manufacturing and non-manufacturing PMI's - September
ISM manufacturing and non-manufacturing PMI’s – September

The ISM surveys were the major economic indicators on traders’ watch list this week. After a surprise downturn in both the manufacturing and non-manufacturing sectors in August which soured the prospects for a September rate hike leaving the Fed to hold rates steady, both of the forward looking indicators came back strongly.

The ISM manufacturing index rose to 51.5 in September, back into ‘expansion’ territory after falling to 49.4 in August. The data beat the conservative estimates of 50.4. On the services side, the ISM non-manufacturing index rose to 57.1 in September posting the largest single month increase in nearly twenty years, after the index fell to 51.4 in August.

US adds 156k jobs in September, Unemployment rate back at 5%

US Unemployment rate - 5.0%, September 2016
US Unemployment rate – 5.0%, September 2016

Jobs data was also in focus this week. Prior to the Friday’s official employment data, ADP payrolls and weekly jobless claims came under the radar. Data from BLS showed that fewer than 249k first time claims were filed for the week ending September 30, which was another strong weekly jobless claims report. ADP’s monthly private payrolls showed 154k jobs being added in September, which was a tad lower than forecasts of 173k. Despite the miss on estimates, ADP remained optimistic of growth in the labor markets.

The Bureau of Labor Statistics data released on Friday saw a disappointing print for September. Official data showed that the US economy added 156k jobs in September, while the unemployment rate jumped to 5.0% after staying steady at 4.90% for three months. However, August payrolls were revised higher to show +167k jobs while July was revised to 252k. The average hourly earnings rose less than expected at a pace of 0.20%

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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