Trump stymied but UK edging towards deal13th November 2018
Sterling suffered an initial setback following comments from the Ulster Unionist Party; that a ‘no deal’ outcome looked likely, but losses were quickly regained. The UK Cabinet meeting is reported to have been positive and a further meeting will be called when a deal is ready to be agreed, potentially this week. Speculation that a mechanism to exit any backstop could be put in place triggered a Sterling surge to highs near 1.3100 against the Dollar.
Brexit rumours continued throughout yesterday with a leaked note suggesting that a deal will be announced next week and a further document outlined a government timetable for securing parliamentary approval for a deal. EU Chief Negotiator Barnier reiterated that he was ready to recommend an EU Summit if he considered decisive progress had been made.
Overall Sterling sentiment was buoyant and increased expectations of a deal triggered further short covering (buying Pounds to close bets against the Pound) and the Euro dipped to five-month lows near 1.1481 against the Pound. This morning Sterling opens at 1.1470 against the Euro and 1.3137 against the Dollar.
The Greenback came under aggressive selling pressure and hit fresh two-week highs below the 95.90 handle versus six major rivals, after it was officially declared that the Democrats secured the needed 218 seats to gain control of the US House of Representatives while the Republicans maintained their majority in the Senate, leaving the Congress divided. In the future, this could lead to major differences of opinion between the Republicans and Democrats, and the far-from-unified stance even within the parties means passing legislation will become much more difficult.
The US JOLTS data recorded a decline in job openings to 7.01mn from a revised 7.29mn previously, although this was still a very strong figure in historic terms while the IBD consumer confidence index declined to 56.4 from 57.8 the previous month.
Looking ahead, markets will assess the implications of the split Congress on Trump’s policies going forward, which will have a significant influence on the Dollar trades. In the meantime, the immediate focus is on the Federal Open Market Committee decision, as the macro calendar today remains data-light whereby the only release of note will be the weekly report on US crude oil supplies by the EIA.
Yesterday saw the EU Commissioner Dombrets confirm that if Italy did not change their budget then the EU would have to consider sanction procedures which caused Italian yields to rise. Despite this, there was a small rally in the Euro due to increasing sentiment that a Brexit deal is getting ever closer.
Eurozone services PMI data was above consensus forecasts, with a particularly strong reading out of Germany. Cost pressures also increased in Germany but inflation pressure eased off in the Eurozone which dampened any support for the single currency.
Today sees the EU non-monetary policy European Central Bank (ECB) meeting, as well as house prices out of the UK. Data, however, is minimal today, with all eyes on the US elections, Brexit, and the Italian situation.
Data to Watch:
07:00 EUR Industrial Production n.s.a. w.d.a. (YoY) (Sep) (Germany)
08:00 EUR Non-monetary policy’s ECB meeting
n/a EUR 10-y Bond Auction
15:00 CAD Ivey Purchasing Managers Index s.a (Oct)
15:00 CAD Ivey Purchasing Managers Index (Oct)
20:00 USD Consumer Credit Change (Sep)
20:00 NZD RBNZ Rate Statement
20:00 NZD RBNZ Interest Rate Decision
20:00 NZD Monetary Policy Statement
21:00 NZD RBNZ Press Conference
23:50 JPY Foreign investment in Japan stocks (Jan 4)
23:50 JPY Foreign bond investment (Jan 4)
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