Morning Report: 16 November 2018

November 16, 2018

GBP. Sterling fell to its knees yesterday, as Prime Minister Theresa May’s administration came under huge pressure after the announcement that Brexit Secretary Dominic Raab had resigned from his position. Raab was one of four high profile ministerial resignations yesterday, and it later appeared that Raab had not even seen the draft deal prior to it being aired in Wednesday’s Cabinet meeting, despite being the chief UK negotiator in Brussels. May took to the lectern at around 17:30 BST yesterday to make a short statement, where sterling cracked fresh lows amidst speculation of it being a resignation speech, but eventually, it was realised that she just reiterated the same points that were made in Parliament earlier. The political turmoil ensured that the drop in the pound between its opening to its closing level was the sharpest this year. Since the press conference, there has been little material change but sterling remains twitchy as market participants sit eagerly on the edge of their seat for the next Brexit headline. Michael Gove’s future hangs in the balance after reports he rejected the promotion from Environmental Secretary to the poisoned position of Brexit Secretary. Reports suggest that Gove may also resign at some point today, as May struggles to refill the seats at the table. Since yesterday, more MP’s have declared that they have submitted letters to the 1922 committee to trigger a vote of no confidence in the Prime Minister. The perennial threat from her own party continues to loom over her head, but should a no-confidence vote be called, it could be the end of the dancing leader as support from within her own party dwindles – an event that would punish sterling further.

EUR. The recently risen correlation between sterling and euro moves broke down yesterday as sterling tanked, and the single currency held relatively steady in the middle of the G10 currency board. Eurozone October Trade Balance came out below expectations at 13.4 billion, which is a bad omen for Q4 growth as lower exports was one of the prime reasons of the growth slowdown in Q3. Eurozone Final Consumer Price Index for October will be released today at 10:00 GMT.

USD. The proud greenback didn’t fare especially well yesterday against G10  as well as emerging market currencies, despite positive Retail Sales data. This may have been caused by the fact that the details of the release were less upbeat than the headline reading, with the core measure having the smallest gain since March at a 2.7% annualized rate over the months of August to October. This stands in sharp contrast with the 9.9% peak seen in the three months to July, indicating the boost of the tax cuts on spending may be fizzling out. This is then a strong indicator that US growth has indeed peaked and will slow down from here on. Capacity Utilisation Rate and Industrial Production will be out at 14:15 GMT.

CAD. The loonie was one of the main beneficiaries of yesterday’s dollar weakness as it sat just under the Aussie dollar in the green section of the G10 currency board. Oil prices began to climb after a terrible week or so, spurring the loonie on to claw back some gains. This came in spite of rising US inventories, adding to the excess in supply sloshing around in the oil market.

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