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06/10/2016

Weekly News Bites: Any export in a storm

Any export in a storm: British manufacturing activity grew at its fastest rate since June 2014, with the Purchasing Managers' Index rising to 55.4 in September, leaping from the already strong 53.4 in August. The weak pound has helped domestic manufacturers be instantly more competitive in international markets, which has led to flood of export orders. Of course the UK is still in Europe, and enjoying open access to her markets for now. (04/10)

Come what May: In her first Conservative Party conference speech as UK's prime minister, Theresa May repeated the "Brexit means Brexit” mantra, brushed aside those who "have still not accepted the result of the referendum" and announced she will formally trigger Article 50 – beginning exit negotiations – by the end of March 2017. Therefore, if all goes to plan, the UK is on track to leave the EU by mid-2019, leaving a year for the public to judge her performance before the next election in 2020. (03/10)

Not just lip service: The crucial US services sector expanded at its quickest pace in almost a year in September, smashing through expectations. The US economy is undeniably on increasingly solid footing: unemployment is below 5%, real wages are rising and businesses appear optimistic. Of course, this makes a rate rise by the Fed more likely by the end of the year, and bond yields have jumped as a result. The yield on 10-year US Treasuries hit 1.73% yesterday, about 20 basis points higher than on Friday. If non-farm payrolls due this week remain robust, this jump may well become a glide. (06/10)

Come and get IT: In the latest manifestation of the search-for-yield phenomena, Italy easily sold a big slug of 50-year debt yesterday in spite of its plagued banking sector, its colossal debt-to-GDP ratio and its poor long-run fundamentals. To boot, a high-stakes referendum is set for December in which the government seeks to sharply diminish the power of the Senate in an attempt to make a notoriously ungovernable country somewhat more manageable. It not passed, the country may well plunge into political chaos anew. The bonds, which mature in 2067, yield about 2.8% annually. Mamma mia. (05/10)

Rub the wrong way: Good news for the Eurozone: unemployment remains steady at a five-year low, and headline inflation hit its joint highest level since July 2014. The bad news: unemployment is at 10.1%, and the inflation rate is 0.4%. While Germany continues to flourish, with an unemployment rate of 4.2%, Spain languishes with one-in-five out of work. Clearly, different levels of monetary and other policy support is needed within; but the central bank has a size fits all rate for all member Eurozone members. Therein lies the rub. (03/10)

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