Main currency pairs little changed

It was extremely quiet in markets generally yesterday with the US out on a public holiday. The euro and sterling are both little changed from this time yesterday morning against the dollar trading at around $1.1060 and $1.3135 respectively, which in turn sees EURGBP trading at about £0.8425 at the start of play today.

In government bond markets, German and UK 10-year yields continued to nudge higher, increasing by around 5bps or so  (to leave them up around 15bps and 20bps respectively over the past month), while in equity markets, European stocks chalked up modest gains of just shy of 0.5% (they have more than recovered from their fall at the beginning of August but still remain shy of their 2024 to date high in mid-May).

Yesterday’s Purchasing Managers data (PMIs) highlighted the contrasting fortunes of the manufacturing sector in the Euro area and the UK. Activity in the Euro area contracted again in August, amid the sharpest decline in new orders so far in 2024, dragged down by Germany and France, while in the UK, activity expanded for a fourth consecutive month in August with output, orders and employment all increasing.

The latest British Retail Consortium survey shows the year-on-year growth in the value of total retail sales picked up in August to 1% from 0.5% in July, with growth in same-store sales strengthening to 0.8% from 0.3%. This points to a continuing recovery in consumer spending, which rose in each of the first two quarters of this year according to the national accounts data (having fallen in H2 2023).

Economic data due today include the ISM manufacturing index for August in the US. The July reading was notably weak (falling to 46.8) so the consensus expects some recovery last month (to 47.5, though this is still below the expansion-contraction threshold of 50.0). Other US data scheduled include a final reading of the manufacturing PMI for August and construction spending for July.