Morning Report: 08 November 2018

November 8, 2018

GBP. Sterling stands still at the moment, with markets seemingly awaiting tangible progress on Brexit negotiations before pushing the pound any higher. It is reported that Theresa May could call another cabinet meeting in the next few days to finalise a draft deal, in order that a deal can be put before Parliament prior to the Christmas break. Appetite for a deal remains high for both MP’s, the EU and markets alike. Although sterling is now close to the highest level in a year against the EUR, it has been capped around these levels several times over that time frame, highlighting how important positive Brexit news is for any further GBP strength. If a deal is decided upon in another cabinet meeting this week or next, sterling will likely shoot up, despite risks it being rejected by the EU and/or Parliament remaining. Apart from an impromptu meeting of senior Tory lawmakers on the cards, the only data release for sterling this week is Q3 and Septembers growth data released tomorrow. Analysts expect UK economic growth to subdue at the back end of 2018.

EUR. Euro couldn’t hold on to the gains it made during the day and after a late afternoon slump eventually ended near the bottom of the G10 currency board. Reuters reported that European Central Bank President Mario Draghi met with Italy’s Finance Minister Geovanni Tria yesterday to advice his fellow countryman to continue to keep fiscal discipline in high regard. For the first time in the history of the European Union, the Italian budget was rejected by the European Commission last week, and the Italians have until the 13th of November next week to come up with a new plan. This budget deadline carries the potential to bring the Italian situation to the forefront again, which can put pressure on the euro. Retail Sales meanwhile were illustrative for the slowdown in Eurozone growth in the second half of this year, as they were flat on the month in September, although the August reading was adjusted upwards quite royally. EU Economic Forecasts are scheduled today at 10:00 GMT, with the assessment of the Italian growth prospects by the EC drawing extra scrutiny.

USD. USD saw a volatile early morning yesterday as the Congressional Midterm results came through, initially triggering a patch of weakness before the greenback rallied in the afternoon. Unless the outcome of the midterms results in a government shutdown, or some type of constitutional crisis further down the road, the most significant impact of the election for USD will be the fact that further fiscal easing of the sort seen in late 2017 is now unlikely. Such a constitutional crisis can’t be ruled out, especially with the fallout as yet unknown regarding President Trump’s decision to effectively fire the Attorney General, Jeff Sessions.  For now, tonight’s Federal Open Market Committee meeting seems a more pressing issue for the dollar. Members are widely expected to keep rates unchanged at 2-2.25% today. Given the President’s continued criticism of the Fed’s ongoing policy tightening, and the continued strength of the economy any changes to the Fed’s statement will be extremely relevant for USD. The FOMC rate announcement and statement will be released at 19:00 GMT.

CAD. Apart from some midday volatility the loonie had a quiet day in the office yesterday and eventually ended in the middle of the major currencies pack, virtually flat against USD, EUR and GBP. After September’s unexpected steep slump in the Ivey Purchasing Manager Index to a level just barely above indicating a contraction, October’s reading again painted a rosy picture of the economy with a score of 61.8. Such a solid reading seems to indicate the Canadian economy is back in “business as usual mode”, with growth prospects that should strengthen the Bank of Canada in their commitment to stay on their hiking path. Meanwhile, WTI crude oil prices slipped for the seventh day in a row, closing almost 20% lower than at the start of October, showing CAD has actually held quite well over the last month, despite lower oil prices.

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