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Retail Rise in Germany Less than Expected as Sterling Remains Fragile

Sterling Remains Fragile 

Sterling continues to remain vulnerable as the continued fall out from Brexit weighs on the currency. Well-documented supply chain issues remain front and centre and potentially could have a lasting impact on growth and inflation, which in turn have heightened stagflation fears. Yesterday, we saw the Q2 GDP reading revised significantly, however, due to the historic nature of this reading the market largely ignored this with the current headwinds in mind. During the day we saw Sterling lifted as the market was reluctant to abandon the potential for a Bank of England (BoE) rate hike before giving up these gains and sliding back towards the lows. Overnight, the furlough ended with uncertainty over the 1-1.6m that were still in the scheme. 

Looking to the day ahead it is fairly quiet with only the second reading of UK PMI manufacturing due for release. 

Lawmakers Set to Vote on Infrastructure Bill

Investors remained concerned about rising inflation, slowing global growth and power shortages in China on global supply chains. The US Dollar gained ground against the Euro for the fifth consecutive day. Q2 GDP was confirmed at 6.7%, slightly better than forecasted, while weekly jobless claims were unexpectedly up. US equities dropped sharply yesterday with the S&P 500 confirming its worst month since the onset of the COVID-19 crisis.

Yesterday, the Senate and Upper House extended a nine-week spending bill to December 3rd to avoid a U.S. government shutdown. Lawmakers are yet to reach an agreement on a $1.2tn bipartisan infrastructure bill as Democrats are set to vote on Joe Biden’s economic agenda.

Set for release today we have Core PCE inflation data for August and Manufacturing PMI figures for September.

Eurozone Retail Sales Rise Less Than Expected

Germany’s retail sales rose 1.1% in September from the previous month but missed expectations of a 1.5% rebound. The single currency remains under pressure amid risk aversion, as European stocks fall following another sharp selloff in US and Asia equities.

The European Union (EU) announced it has postponed the next round of a free trade agreement with Australia for a month. The 12th round of negotiations were due to be held between officials in October but will now take place in November as a reaction to the cancellation of the submarine contract with French company Naval Group.

Today, Markit will publish the final version of its September Manufacturing PMI and markets will focus on the preliminary estimate of September inflation figures.

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