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Slow September still a positive for stocks, but FTSE underperforms

Aside from the FTSE100 it’s been a fairly positive month for European and US equity markets, as we come to the end of Q3, with US markets continuing their habit of making and closing at new record levels.

The general data improvement we’ve seen over the last few weeks and months has helped bolster both the euro and the pound, and while the US dollar has come under pressure, it has started to rebound in the last few weeks as investors focus on the potential for the first indications of a wider scale tightening of monetary policy from the larger central banks, as well as the prospect that we might get some limited form of US tax reform.

The rebound in sterling has acted as a bit of a drag on the UK benchmark with the pound set to post its best monthly performance against the US dollar since before last year’s Brexit referendum, while also posting its third consecutive quarterly gain, its best run of quarterly gains since 2013/14.

It’s also set to be a busy end to the month data wise today with the final iteration of UK Q2 GDP, though we’re not expecting too much in the way of fireworks here with GDP expected to be confirmed at 0.3%, and an annualised 1.7%.  Business investment is expected to remain unchanged at 0%. In terms of the overall economy index of services for the three months to July is expected to improve to 0.7%, which might augur well for the Q3 numbers next month.

These numbers are of lesser importance than the more recent data and here there is scope for increased optimism, despite worries that the UK consumer is slightly over borrowed. Recent retail data has shown that while consumers are a little reluctant to spend on big ticket items, there still seems decent activity in on-line retail, groceries and clothing.

Today’s lending data is unlikely to alleviate those concerns with consumer credit in August expected to show an increase from £1.2bn in July to £1.4bn. Mortgage approvals are expected to slow slightly to 67.3k from 68.7k as evidence grows of a slight slowdown in housing activity, though there may also be a seasonal element here too.

The focus on inflation is also expected to show a shift as well, with the latest snapshot on price pressures in both the EU and the US.

In recent weeks we have started to see some stirrings of price inflation in some of the internal data from both the EU and US while the recent rise in oil prices has also acted as a tailwind.

This is likely to see the latest September CPI numbers from the EU tick up to 1.6% from 1.5% in August though core prices are expected to remain unchanged.

Earlier this week Fed chief Janet Yellen expressed some puzzlement as to why inflation was so lacklustre and today’s PCE numbers are aren’t expected to offer too much encouragement in terms of a move back to the Fed’s target of 2%. The August number is expected to remain at 1.4%, unchanged from July, while personal spending is also set to fall back to 0.1% from 0.3%.

The recent hurricanes of Harvey and Irma are expected to introduce a significant skew to some of the data over the next few weeks, which is likely to make identifying a trend that much more difficult on assessing the wider impact on the US economy, as well as whether any economic effect is likely to be transitory in nature.

EURUSD – has found some support at the 1.1715 area which is delaying the prospect of a move towards the 1.1600 level. The current rebound needs to get back through the 1.1830 level breakout level to delay this and prompt a move back to the 1.1920 area.

GBPUSD – has found some support just above the 1.3340 area, and needs to push back through the 1.3470 level to argue for further gains back towards the 1.3660 area. A move through this level could see a move towards 1.3755, on the way to a move towards the 1.4000 area.

EURGBP – the 200 day MA around the 0.8720 area remains the next target, however it would be a surprise to see a move beyond here. Pullbacks need to stay below the 0 8820 area, while we have broader resistance at last week’s high at 0.8900. 

USDJPY – a double failure at the 113.20 level has seen the US dollar drift back, which given stretched momentum isn’t surprising, and as suspected we did find support at the 112.20 area. A move through here retargets a return towards 111.30. Only a break below the 111.30 area, argues for a return towards the 110.20 level.

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