Pound choppy after Theresa May speech sets out vision for Brexit break-up

Theresa May's key Brexit speech in Florence has failed to inspire sterling this afternoon with the choppy pound drifting lower on the currency markets and sentiment split on the markets by an appearance notably light on detail.

Mrs May said that the UK will honour its financial commitments to the EU and is seeking a two-year transition period. She also reiterated the Government's stance that the UK will be leaving the single market and customs union but didn't mention the €20bn divorce offer referenced in press reports.

Sterling dived as Mrs May spoke before rebounding and then beginning its descent once again, finishing the day 0.7pc lower against the euro and 0.4pc down against the dollar. 

IG's chief market analyst Chris Beauchamp believes the speech was big on rhetoric but small on market-moving details.

He said:

"It has been a day of high expectations, and yet little in the way of really market-moving news. First OPEC, and then Theresa May in Florence. OPEC did not add much to the general picture surrounding the oil market, with a general air of ‘job going well so far, but more to do’. This however failed to satisfy oil traders, who had been hoping for indications of deeper cuts, rather than just an extension of existing measures. As a result, WTI is still stuck below $51, with all the signs pointing to another turn lower for the commodity.

"Meanwhile, having been billed as one of the big events of the month, Theresa May’s appearance in Florence also proved to be a let-down. The speech was big on  Johnson-style rhetoric, with plenty of ‘broad sunlit uplands’ stuff that spelled out how the UK wished to be a friend to the EU. But beyond that, little else. The pound took a bit of a knock, giving the FTSE 100 room to move higher, but beyond that the market has taken little notice. The focus returns to the negotiations, which should start again next week."

Sterling has quite remarkably in less than half an hour reversed the losses it made during the speech and rebounded right back to where it started. It's all over the place on the currency markets and is beginning to drift down again.

There wasn't much that shocked traders in that speech but the lack of detail may be driving the negative sentiment on forex markets.

Let's have a look at what the currency experts made of that speech.

ETX Capital analyst Neil Wilson gave it a thumbs down. 

He said:

"A bit of a dud, although with one important change; Theresa May’s speech was, as expected, a bit opaque, thin of detail and offered no new fundamental direction.  Officially the government is now advocating a transition period, and that the UK will keep paying its subs, but this had all largely taken as read.

"The key difference seems to be that Britain is no longer pushing for a bespoke transition deal, which ultimately kicks Brexit down the road by two more years, but it also is more likely to be acceptable to the EU and suggests we will see a smoother exit and this ultimately may prove positive for sterling."

City Index analyst Kathleen Brooks commented that the speech glossed over the key details.

She explained:

"The gyrations in the FX market during May’s Brexit speech in Florence speaks volumes about how it has been received. Overall, the pound is lower than it was before she spoke, suggesting that she may have glossed over some key details that are crucial to determining the future of the Brexit negotiations.  

"May confirmed that the UK team, which could last around 2 years, would pursue a period of implementation, which is allowed under Article 50. Interestingly, she hinted that this implantation period might need to last for as long as it takes to get a smooth exit for the UK from the EU, which could be longer than 2 years. This was the only time during her speech when the pound bounced, and the financial markets warmly received this point."

Let's have a few key business takeaways from the speech:

1.  The pound dives on the currency markets during the speech but claws back some lost ground moments after, leaving it 0.3pc lower against the dollar and 0.6pc down against the euro.
2. The UK will honour its financial commitment to the EU and is seeking a two-year transition period; no mention of  the €20bn sum referenced in press reports.
3. Mrs May reiterated that the UK will be leaving the single market and customs union.

We're now onto the Q&A. Following the speech, the pound has dived 0.5pc against the dollar and 0.9pc against the euro.

Nothing in there really shocked the markets but the pound is flashing bright red on traders' screens in the City and is by far the worst performing major currency today.

Within the context of the pound's move higher over the last couple of weeks these movements aren't colossal. Sterling has now stabilised at just over $1.35 against the dollar.

Theresa May isn't fooling the currency market with her speech this afternoon, according to Martin Arnold, FX and macro strategist at ETF Securities.

He commented:

"Smoke and mirrors from PM May isn’t fooling the FX market: PM May is trying to change the perspective and is talking about the EU transitioning to new environment and how the UK can assist with the EU’s problems, like migration and terrorism. PM May wants to continue to be cooperative with the EU, something that is good for the UK economy, but that is already priced into GBP.

"A ‘softer’ Brexit is good for both sides and will continue to be a critical point for the Conservatives. However, negotiations are ongoing and constructive rhetoric is unlikely to be a catalyst for further strong gains in GBP."

The pound has clawed back some lost ground after Theresa May said that the UK will honour its financial commitments to the EU. 

There was almost no reaction to Theresa May saying as expected that the transition period will be around two years.

The pound started the speech in flat territory against the dollar but has since dived 0.5pc down to $1.3512. Mrs May reiterated the Government's stance that the UK will be leaving the single market and customs union.

The pound started to yo-yo a couple of minutes into the speech after Theresa May got past all the usual pleasantries. 

Sterling nudged down a notch since the speech started but nothing has shocked the markets so far.

Can Theresa May's speech this afternoon build on the strong gains sterling has made this month?

Against the dollar, the pound has soared 5.4pc in September alone on the back of renewed hopes of an interest rate hike at the Bank of England before the end of the year, taking sterling to its highest post-EU referendum level versus the greenback. 

The speech could "not only set the tone for the rest of the day, but decide whether or not sterling can continue its super September surge next week", according to Spreadex analyst Connor Campbell.

With so much of Theresa May's speech, which is due in just under 45 minutes, leaked to the press, the pound could end up having a quieter afternoon than initially thought.

Mrs May is expected to set out her stall by offering €20bn over a two-year transition period and will tell the EU that it has a "profound responsibility" to strike a deal.

Sterling is a little jittery ahead of the appearance, nudging down against a dollar performing poorly on the rest of the currency markets and retreating 0.4pc against the euro.

ETX Capital analyst Neil Wilson said this on how the speech might move markets this afternoon:

"The PM is likely to make certain overtures in an attempt to kick-start the next round of talks on September 25th, and this ought to give some direction to the pound.  If the market decides this speech means the next round of talks have a chance then the pound could rise. If not, recent rate-hike speculation based gains could erode.

"The FTSE 100 looks like being a straight sterling-based play given the negative correlation between the pound and the blue chip index. But while there’s a lot of chatter around the Florence speech, it may not be that decisive. These things have a tendency to over-promise and under-deliver and details will be thin on the ground. It is questionable that she can ‘break the deadlock’ as some suggest, given the meat of any negotiations take place behind closed doors."

Manufacturers in the Eurozone enjoyed strong growth last month, strengthening the EU’s bargaining hand in Brexit trade negotiations ahead of Theresa May’s speech in Florence today.

IHS Markit’s composite purchasing managers index (PMI), a closely watched barometer of economic health, rose to a four-month high of 56.7 in September. Any reading above 50 indicates growth in a sector.

France and Germany led the charge, with German manufacturers' PMI rising to 57.8 in September from 55.8 in August. Economists had been expecting a small fall to 55.6.

Read Anna Issac's full report here

The pound is suffering a bout of pre-match nerves ahead of Theresa May's speech in Florence this afternoon, in which she is expected to set out her stall on the Brexit transition period to kick-start negotiations.

Sterling is in flat territory against a retreating dollar, trading at $1.3565, and has dipped 0.4pc against the euro to €1.1331 ahead of the crucial appearance.

The equity markets in Europe have shaken off renewed fears over North Korea to post solid gains with the FTSE 100 paring early losses to nudge up 0.1pc. Chemical specialist Johnson Matthey is leading the blue-chip index for a second consecutive day after analysts gave its next-generation battery technology strategy the thumbs up while sliding metal prices has pulled down the big mining stocks.

Elsewhere, Transport for London has stunned US ride-hailing service Uber after it announced that it will not be renewing its private hire operator licence when it expires on September 30, citing its approach to reporting serious criminal offences and obtaining medical certificates.

Transport for London has denied Uber's request to renew its licence in London after determining that the car-hailing app is "not fit and proper" to hold a licence.

The decision means that as things stand Uber will not be licensed to operate in the capital from Saturday September 30, when its current licence expires.

The company said it intended to immediately challenge the decision. It has 21 days to appeal the move, and if it does so can continue to operate as normal until the challenge is finished.

Read James Titcomb's full report here

Excitable traders spiked Just Eat shares immediately after TfL announced that it will not be renewing Uber's private hire licence at the end of the month but the delivery service's gains have come off a little in the last twenty minutes or so.

Given that Uber Eats has nothing to do with the company's taxi service business, one would imagine that today's ruling will have no bearing on Just Eat's battle for market share in the capital.

Uber has just released quite the rebuttal to the ruling, saying that 3.5m Londoners using the app and the 40,000 Uber drivers will be "astounded" by the decision.

The company added that it will challenge the ruling in court and that the ban shows that "London is closed to innovative companies who bring choice to consumers". Meow.

Manufacturing output growth slowed in the three months to September but order books remain full, according to the CBI's industrial trends survey just released.

The CBI said that respondents expect output growth to rebound in the next quarter with slowing growth driven largely by the food and drinks sector.

A balance of +7pc of manufacturers said that order books were fuller than normal with export orders underpinning the figures, the CBI added.

Anna Leach, CBI head of economic intelligence, commented:

“Manufacturers continue to report solid growth in output, while total order books and export order books are holding firm.

“Expectations for selling prices were largely in-line with the previous month, but price pressures do appear to have moderated somewhat since earlier in the year.”

Transport for London has announced in the last few moments that Uber will not be issued with a new private hire operator licence after it expires at the end of the month.

TfL said that Uber is "not fit and proper" to hold a licence, citing its approach to reporting serious criminal offences and obtaining medical certificates.

Let's have a quick look at what's moving in London this morning following a tentative start to trading.

Miners are weighing heavily on the FTSE 100 index after slipping on softer metal prices as persistent fears of slowing Chinese demand exacerabated by S&P's downgrade of the Asian powerhouse yesterday drag on copper and iron ore prices.

Chemicals specialist Johnson Matthey is spending a second day at the top of the blue-chip index after analysts gave the strategy laid out at its Capital Markets Day yesterday the thumbs up.

Coca-Cola's London-listed bottling company is following close behind after a broker upgrade from Morgan Stanley while engineer Smiths Group is lagging most on the blue-chip index after underlying revenue declined.

The markets seemed fairly undeterred yesterday by Donald Trump announcing that the US will step-up sanctions against North Korea but the rogue state threatening to test a hydrogen bomb in the Pacific has spooked investors a little this morning.

The usual suspects, safe havens the Japanese yen and gold, are enjoying modest bounces from the latest threat and equity markets in Europe are a little hesitant this morning, the FTSE 100 nudging down into the red.

CMC Markets analyst David Madden said on the markets' reaction to the latest twist in Asia:

"Traders are certainly keeping an eye on the developments in the region, but while there is no military action, there will be some investors who will hold their nerves through the tense stand-off."

The markets seemed fairly undeterred yesterday by Donald Trump announcing that the US will step-up sanctions against North Korea but the rogue state threatening to test a hydrogen bomb in the Pacific has spooked investors a little this morning.

The usual suspects, safe havens the Japanese yen and gold, are enjoying modest bounces from the latest threat and equity markets in Europe are a little hesitant this morning, the FTSE 100 nudging down into the red.

CMC Markets analyst David Madden said on the markets' reaction to the latest twist in Asia:

"Traders are certainly keeping an eye on the developments in the region, but while there is no military action, there will be some investors who will hold their nerves through the tense stand-off."

The uptick in the eurozone PMI readings indicates that the strong first-half momentum was maintained in the third quarter, according to Pantheon Macro's chief eurozone economist Claus Vistesen.

He added:

"Output and new orders are rising briskly, although the pace of new export orders slowed at the margin due to the appreciation of the euro. Given the jump in the German and French manufacturing PMIs, though, we have to assume that this mainly was a story in the other major economies."

The figures show that the recent appeciation of the euro has not been strong enough to derail growth, argued Julien Lafargue, European equities strategist at JP Morgan Private Bank.

He said:

"Instead, we view the strength in the single currency as the reflection of an improving growth outlook which justifies a gradual normalization of the ECB’s extremely accommodative policy.

"In this context, we remain constructive on European equity markets with a preference for the banking sector and, regionally, French equities as we believe the market is underestimating their superior growth potential." 

Although the euro has had a strong morning on the currency markets after those better-than-expected PMI readings, the pound is really struggling against the currency ahead of prime minister Theresa May's speech in Florence, dropping down to €1.1310 in the last few moments.

Mrs May is expected to set out her stall on the UK's break-up with the EU at her appearance in Tuscany just after 2pm this afternoon.

The speech is expected to contain no concrete offers but Mrs May will promise that the UK will pay into EU funds during the two-year transition period, a sum thought to be around £20bn.

The eurozone has capped off a strong summer with a spurt of economic activity, according to IHS Markit's PMI reading released in the last few moments.

The eurozone's momentum accelerated again in September after a slightly softer August with the overall PMI reading hitting a four-month high at 56.7, boosted by a stronger-than-expected uptick in both the manufacturing and services sectors.

The boost in manufacturing output was the largest rise since April 2011 with the sector recording a record increase in employment.

Chris Williamson, chief business economist at IHS Markit, said

"The eurozone economy ended the summer with a burst of activity, with the PMI signalling renewed impetus to already-impressive rates of growth of output, order books and employment during September." 

The reading did little to the pound's performance against the euro, however,  one would imagine because the beat has already been priced in following the strong German and French readings.

Sterling has drifted lower against the euro after we got a taster of the eurozone PMI figures due out at 9am.

Services and manufacturing PMI readings from Germany and France released a little earlier than the currency bloc's overall figures were much stronger than expected.

With the eurozone's two economic powerhouses beating economists' expectations, the pound has slipped 0.4pc lower to €1.1330. 

After a month dominated by the central banking top tier stepping up plans to roll back stimulus, politics takes centre stage on the markets once again with prime minister Theresa May expected to set out her vision for the UK's breakup with Europe at a speech in Florence to kick-start stuttering Brexit negotiations.

Ahead of the speech, the pound is stuck in flat territory at $1.3578 against the dollar, which has slipped off its post-Fed meeting highs, while the euro is getting the better of sterling early on, advancing 0.3pc. 

Germany's federal elections on Sunday have become a side note on the markets, given the level of certainty that Angela Merkel's grand coalition will win power once again, but there is once last release of data scheduled to help support her boasts that Europe's engine room is in rude health.

Flash PMI readings from the eurozone due this morning are expected to confirm that the the currency bloc is performing strongly with the US's own PMI figures due this afternoon.

The FTSE 100 has dipped in early trading as the markets' risk-on mood is dampened by North Korea's threat to test a hydrogen bomb in the Pacific. Engineering firm Smiths is lagging most on the blue-chip index early on after reporting lower underlying revenue in its full-year results this morning.

Interim results: Saga

Full-year results: Smiths Group

AGM: Accrol Group Holdings, Sirius Real Estate

Economics: Flash Services PMI (US), Flash Manufacturing PMI (US), Flash Services PMI (EU), Flash Manufacturing PMI (EU)