Morning Report: 11 October 2018

11th October 2018

GBP. Brexit headlines continued to dominate the media yesterday, smothering the poor economic data release in the morning. Yesterday’s August Gross Domestic Product figures surprised to the downside showing the economy didn’t grow at all compared to July, however, the negative shock was somewhat mitigated by July’s upward revision to 0.4%. In spite of this, GBPUSD rallied 0.4% over the course of yesterday as EU Chief Negotiator, Michel Barnier, said there was an 85% chance of a Brexit deal being reached as much of the deal is already complete. Today, Bank of England Governor Mark Carney is set to speak on stepping up Green Finance at 10:00 BST with the BoE Credit and Liabilities survey released.

EUR. After a bad start to the week, the euro recomposed itself somewhat yesterday, reclaimed terrain versus USD and managed to secure a place in the top half of the G10 currency board. For the second day in a row, Italian bond yields declined, indicating concerns over the country’s financial situation are reducing, though the level of volatility seen on these assets clearly demonstrates the Italian situation still finds itself in troubled waters. Fitch concluded as much when it updated its outlook on the country’s BBB sovereign rating to negative yesterday. Italian Industrial Production did offer a glimmer of hope yesterday, as it not only grew by 1.7% in August but also saw the July reading being upgraded. Today at 12:30 BST the European Central Bank Monetary Policy Minutes will be in the prime focus of markets.

USD. The dollar remains under pressure this morning, amidst the worst market sell-off in the US since February following Donald Trump’s comments last night saying the Federal Reserve is “going loco”. The President is critical of the tightening monetary policies of the central bank and considers himself a “low rates guy”, and worries how a too high of a pace in rate hikes might suffocate the economy and kill growth. The S&P 500 shed more than 3% whilst Treasury yields rose moderately, after having been on a tear recently. Yesterday’s data release saw the Producer Price Index measure of inflation come in on expectation at 2.5% YoY. Today, at 13:30 BST, the Consumer alternative is released with a 0.2% MoM increase expected for September. Although CPI isn’t the Fed’s preferred measure of inflation, it provides a litmus test for the US economy which markets will pay close attention to as the US yield curve continues to move.

CAD. Yesterday CAD was again unable to escape the maelstrom that has washed away most of the gains it made since the new NAFTA agreement. The currency even sank to the bottom of the G10 currency board yesterday. A sharp sell-off in oil prices after oil inventories unexpectedly rose was easily identified as the main culprit of this, though it remains somewhat of an enigma why the loonie hasn’t rallied more after the uncertainty around trade with the US got lifted after the new USMCA deal. The National House Price Index will be closely watched today at 13:30 BST after the Building Permits reading for July got notably downgraded yesterday.