Sterling tumbles sharply today after prime minister Theresa May laid down the timeline for Brexit. May said in the Conservative Party's annual conference that she will trigger formal Brexit talks by the end of March next year. The negotiation could last for two years and lead to UK leaving EU by April 2019. She would also request EU leaders to start "preparatory work" before triggering the so called Article 50 of the Lisbon Treaty. Chancellor of Exchequer Philip Hammond warned that "we must expect some turbulence as we go through this negotiating process". And, "there will be a period of a couple of years or perhaps even longer when businesses are uncertain about the final state of our relationship with the European Union and during that period we need to support the economy." Technically, Sterling is broadly lower today after the news. In particular, EUR/GBP broke 0.8723 near term resistance and should be resuming the uptrend from 2015 low at 0.6935.
Also from UK, manufacturing PMI rose to 55.4 in September, well above expectation of 52.1, and hit the highest level since June 2014. Market noted that "September saw the UK Manufacturing PMI rise to its highest level since mid-2014, recovering further from its EU referendum inspired low in July. The rebound over the past two months has been encouragingly strong, and puts the sector on course to provide a further positive contribution to GDP in the third quarter." But the data provides little support to the Pound. Also from Europe, Eurozone PMI manufacturing was finalized at 52.6 in September, unrevised. Swiss SVME PMI rose to 53.2 in September versus expectation of 51.9. Swiss retail sales dropped -3.0% yoy in August versus expectation of -1.6% yoy.
More indicators suggest that Japan's economy is not going to get better anytime soon. The latest Tankan survey (conducted between August 30 and September 29) confirms that business sentiment failed to improve, companies lack the ability to increase output prices and the risks to the inflation are skewed to the downside. The business conditions DI for large manufacturers stayed unchanged at 6 in September, compared with consensus of 7. The DI for large non-manufacturers slipped -1 point to 18, in line with expectations. The actual situation might be worse as the index probably failed to fully reflect the recent appreciation in Japanese yen. DI for small manufacturers, staying in the negative territory for a third consecutive quarter, improved to -3 from -5 in the June quarter. This came in better than expectations. DI for non-manufacturers edged slightly higher to 1 from 0. Meanwhile, the expectations indicators remain dismal. We expect BOJ would be obliged to add further stimulus measures in the next meeting.
US will release construction spending and ISM manufacturing later today.