Morning Report: 07 November 2018

November 7, 2018

GBP. Sterling continued its solid November performance yesterday as Theresa May appears on her way to request Cabinet approval on her newest Brexit proposal to the European Union, which should tackle the issue of the backstop option on the Irish border. This had GBP rank second behind NZD in yesterday’s currency ranking. Brexit developments will dominate the moves on sterling again today, as no major data releases are scheduled.

EUR. Soft services sector sentiment surveys couldn’t shake the single currency too much and at the end of the day the euro found itself stably in the middle of the G10 currency board. The Italian Purchasing Manufacturing Index for the Services sector in October did paint a dismal picture for the economic outlook of the country, as it dove sharply lower to a score of 49.2, just like the Manufacturing PMI on Monday. This score below the neutral level of 50 indicates the Italian economy is heading for no, or negative growth in the coming months, which is a bad sign for the sustainability of Italian debt as the government deficit continues to rise in the meantime. Today Retail Sales at 10:00 GMT may offer some distraction after a bad month earlier.

USD. The greenback traded flat while the world held its breath for the US midterms, which brought some dollar weakness with it overnight. The expected scenario eventually played out with Republicans strengthening their hold on the Senate and Democrats regaining the majority in the House of Representatives. This implies a political deadlock, in which Democrats may try to frustrate plans of President Trump by shooting them down in the House. They can also threaten with government shutdowns if they disagree with Trump’s policies. As cooperation seems unlikely in today’s American polarized political climate chances of further tax cuts and fiscal spending plans by Trump seem to have been curtailed, which leaves the President mostly with powers in foreign and trade policies, which may cause a flare up again in trade wars.

CAD. The loonie was the exception of the more risk sensitive G10 currencies yesterday as NZD and AUD saw solid advances while CAD slumped. Oil prices on the decline and a political deadlock in the US that may have Trump focus on aggressive trade policies again were likely among the main factors that contributed to a negative environment for the loonie yesterday. Today brings us the Ivey PMI to tell us about the prospects of the Canadian economy at 15:00 GMT.


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