Morning Report: 25 September 2018

September 25, 2018

GBP. Sterling topped the G10 currency board against a generally strengthening dollar yesterday, posting a 0.37% rally on cable. Theresa May called a cabinet meeting yesterday, where a possible contender for leadership Sajid Javid, navigated a new immigration regime through divided opinions. The regime suggests the UK would be open to high skilled migrants post-Brexit, and the bill won’t exclude migration into industries that are dependent on the inflow of low-skilled labour such as the construction industry, as was previously suggested. Yesterday at the Labour Party Conference it was released that about 80% of Labour voters would want a vote on a Brexit deal proposed by the current government. However, Jeremy Corbyn suggested this would not be the case, as Labour has previously stated it will shut out any possible Brexit deal proposed by May. This comes in spite of high profile Labour members such as Sadiq Khan backing the second vote. News surrounding this topic will increase today as the Labour Party Conference continues and a “Brexit Vote” discussion has been added to the agenda. This is a vote on what the party should do given a general election cannot be called, and the results hold the possibility to make the pound volatile today.

EUR. Mario Draghi’s comments about “relatively vigorous underlying inflation pressures” sent EURUSD to a three month high, although the euro erased most of the gains made on these remarks later during the session. The European Central Bank President referred to past ECB projections and building wage pressures but declined to elaborate further on his views. This may imply Draghi thinks markets do not pay enough attention to the ECB expectation that core inflation will rise to 1.8% by 2020 – virtually in line with the “just under 2%” ECB inflation target. Yesterday, the German Ifo Business Climate came in above the median forecast at 103.7 for September, showing the same resilience as German Purchasing Manager Indices earlier.

USD. The greenback withstood fierce pressure from the euro around midday, but eventually closed higher against most G10 currencies in a day that will mostly be remembered by the annals of history as the moment that both the US and China installed new import tariffs. The Trump administration slapped tariffs on $200 billion worth of goods early in the morning, to which China retaliated by invoking tariffs on $60 billion worth of US exports. China also called off fresh trade talks that were planned with the US, which likely makes the earliest possibility for a new round off talks to happen after the US midterm elections at the start of November, indicating that a quick resolution to the trade war seems to slip out of sight. Today, the markets shift their attention to New York, where President Trump will address the UN General Assembly – an event that caused the likes of “rocket man” memes last year. But this time, with tensions calmed between the US and North Korea, Trump is expected to raise concerns with Iran as the world leaders meet at the UN for the first time since the US withdrew from the 2015 Iran nuclear accord.

CAD. The loonie was scrambling for direction yesterday on a day in which oil prices reached new highs, a CAD positive, while the US-Sino trade war entered a new stage, a bad omen for NAFTA negotiations and hence a drag on CAD. Canadian data showed a more clear direction, with Wholesale Sales for July beat expectations by a margin of +1.5%. Today the United Nations General Assembly gathers on which the Iran nuclear deal will be discussed, which can put oil prices and thus CAD on the move. More importantly, Canadian Prime Minister Justin Trudeau said on Sunday that he expects informal NAFTA meetings to be held during the assembly as well.

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