Morning Report, Monday the 5th of November 2018

November 5, 2018

GBP. Sterling had a short bull run this morning in the Asian session on the back of optimism about the chances of a Brexit deal, although the currency has pared its gains again this morning as leveraged players start to take bets the chances on a deal may be slimmer than some estimate. The upbeat vibe regarding Brexit that arose over the weekend was due to a report by the Sunday Times, which read that Theresa May secured concessions from the EU that allowed her to keep Britain in the Customs Union and avoid a hard border with Northern Ireland. Services Purchasing Manager Indices are set for release today at 9:30 GMT, with the first reading of Q3 Gross Domestic Product expected to come in at a healthy 0.6% on Friday.

EUR. After again soft manufacturing Purchasing Manager Indices on Friday the euro was fairly range bound, with minor losses against the greenback, but gains against JPY and GBP. Especially the Italian October reading stood out at a level of 49.2, which indicates a contraction in this sector. This morning sees Sentix Investor Confidence at 9:30 GMT, with later in the week Retail Sales on Wednesday and the European Commission Economic Forecasts for European Union member countries on Thursday.

USD. A solid beat on the Non-Farm Employment growth and the fastest wage gains in 9 years were enough to have the DXY dollar index eke out gains for another week. The amount of jobs added to the economy was 250k, far above the 187k median forecast, despite hurricanes that had the potential to limit increases in jobs. Yearly wage growth rose to 3.1% year on year, the highest level since 2009 and a nice confirmation for the Federal Reserve inflation pressures are indeed rising, which justifies their hawkish policies. Today sees the ISM Non-Manufacturing PMI at 15:00 GMT, Federal Open Market Committee Funds Rate Announcement on Wednesday and of course the midterm elections on Tuesday. The latter carries the risk of a political deadlock, as President Trump may lose the Republican majority in the House of Representatives to the Democrats. This would prevent Trump from further tax cuts and fiscal spending and, arguably, can therefore be a dollar negative.

CAD. Despite Canada’s jobless ratio hitting a 40 year low, the loonie failed to gain much ground on Friday, possibly due to disappointing numbers in wage growth and exports. Wage growth slowed down to the lowest level in a year, with year-on-year increases of 2.2%, which were as high as 3.9% 12 months earlier, exports shrank by 0.2% in September and the participation rate dropped to the lowest level in two decades. “Winter is coming” may be a remark too strong for this string of data, but signs of cooling of the Canadian economy are certainly there, which can slow down the Bank of Canada’s hiking pace in the coming months. BoC Governor Stephen Poloz speaks today at 13:10 GMT and the Ivey PMI is out on Wednesday.

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