Sterling spooked by no-deal risks1st November 2018
UK CBI retail sales declined to 5 in October, down from September’s print of 23 and the sales volumes were the lowest since March. Despite expectations of a better reading in November, October’s consumer confidence component remained subdued.
Sterling sentiment was hampered by economic doubts, Brexit uncertainty, and weaker oil prices as markets fretted over the global trade outlook. Significant month-end selling pulled the Pound lower. Ratings agency S&P stated that no-deal Brexit risks had increased and they would likely cut the UK rating if there was such an outcome, especially with an increased recession risk. Sterling fell to just below 1.2700 against the Dollar, levels last seen in mid-August, and the Euro pushed the Pound to one-month lows around 1.1205.
Today the market will be wary of month-end volatility and tomorrow’s Bank of England policy meeting where no-deal risks are expected to be outlined again. Sterling has only managed a marginal correction this morning and opens at 1.2725 against the Dollar and 1.1210 on the Euro.
Yesterday saw a wave of US Dollar buying, supported by the US President Donald Trump’s comments over a possible trade deal with China, aggravating the selling pressure.
US consumer confidence strengthened to a fresh 18-year high for October, maintaining expectations of US out-performance in the short term and there were strong expectations of a further rate increase at the December meeting. The Dollar also gained support from expectations of month-end buying and underlying seasonal Dollar demand.
Later during the early North-American session, the US private sector employment details – ADP report, will influence the Dollar price dynamics and assist traders to grab some short-term opportunities.
Softer economic data out of Europe yesterday saw the single currency lose a bit of ground versus the Dollar. Eurozone and Italian GDP growth both slowed down which led to Deputy PM Salvini stating the Government would continue with its budget as planned, only increasing geopolitical instability.
In more positive news, German CPI figures came in above consensus and reached a 10-year high level of 2.5% year-on-year. Unemployment declined again in Germany but this seemed to provide only a small lift for the Euro. On Wednesday morning versus the Dollar, the Euro is being held just below the 1.1350 level.
Data today consists of German retail sales, French/Italian CPI numbers, Spanish GDP numbers, Italian unemployment, and Eurozone unemployment and CPI figures. Markets will be most interested in the CPI numbers which are due this morning.
Data to Watch:
07:00 EUR Retail Sales (MoM) (Sep) (Germany)
07:45 EUR Consumer Price Index (EU norm) (YoY) (Oct) (France)
09:00 EUR Unemployment (Sep) (Italy)
09:00 CHF ZEW Survey – Expectations (Oct)
10:00 EUR Unemployment Rate (Sep)
10:00 EUR Consumer Price Index – Core (YoY) (Oct)
10:00 EUR Consumer Price Index (YoY) (Oct)
12:15 USD ADP Employment Change (Oct)
12:30 CAD Gross Domestic Product (MoM) (Aug)
13:45 USD Chicago Purchasing Managers’ Index (Oct)
17:15 CHF SNB Chairman Jordan Speech
20:15 CAD BoC Governor Poloz Speech
21:30 AUD AiG Performance of Mfg Index (Oct)
23:50 JPY Foreign investment in Japan stocks (Oct 26)
23:50 JPY Foreign bond investment (Oct 26)