A lack of material stats from the UK economy on Monday left its direction in the hands of market risk sentiment. So, when positive sentiment materialised as fears of the economic impact from China Evergrande Group’s debt situation receded slightly, the pound moved back above 1.37 against the dollar. This marked a change in fortune for the pound vs dollar rate, following a slump in value late last week as uncertainty surrounding China Evergrande took its toll.
Fears that China Evergrande could default on over $300 billion of debt have clouded markets recently, although some of those concerns appear to be fading. The People’s Bank of China injected a net CNY100 billion ($15.46 billion) into the financial system on Monday, topping up the net CNY320 billion added last week. However, investors remain cautious about how the debt-laden property developer’s situation will play out.
Bank of England Governor Andrew Bailey echoed comments from the central bank after last week’s policy decision, by saying that he and the majority of the Monetary Policy Committee see a growing case to raise interest rates. Speaking to the Society of Professional Economists on Monday, Bailey said: “All of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainably over the medium term,”
US core capital goods orders rise
New orders and shipments of key US-made capital goods increased more than expected last month – largely driven by strong demand for computers and electronic products – keeping business spending on equipment on course to record another quarter of strong growth. The ongoing strength in business investment should soften the blow dealt to economic growth by an anticipated slowdown in consumer spending this quarter, as the boost from fiscal stimulus dissipates and Covid-19 infections soar.
Orders for non-defence capital goods (excluding aircraft) – a closely monitored proxy for business spending plans – increased 0.5% in August, the Commerce Department said on Monday. Orders for durable goods – goods planned to last for three years or more, such as motor vehicles and appliances – jumped 1.8% in August and business investment also rose for the sixth straight month. Economists had forecast a 0.6% increase.
By this morning, the pound vs dollar rate had slipped back to the 1.36 level after the US currency advanced on the back of rising Treasury yields ahead of a raft of Federal Reserve speakers this week, who could affirm expectations of asset purchase tapering in the fourth quarter.
US labour market data dominates the economic calendar today, with the Housing Price Index and the S&P/Case-Shiller Home Price Indices both set to be published, alongside the Consumer Confidence reading for September.