Morning Report: 15 October 2018

15th October 2018

GBP. This week proves pivotal for sterling as it struggles to find a foothold amidst Brexit uncertainty. The European Council were meant to meet on Wednesday evening to discuss the UK’s withdrawal agreement ahead of Thursday’s summit. However, last night Theresa May threw a spanner in the works when she refused to sign off on a draft agreement reached by her colleagues in Brussels that would see the UK remain in the customs union for years to come. This builds upon the backlash from her own party that was seen last week regarding the Irish border “backstop” option that had an unspecified end date. Recent developments throw into question the whole Brexit agenda and timeline, adding downside risk to sterling in a week brimmed with top-tier releases. Labour market data is released on Tuesday, the Consumer Price Index measure of Inflation is released Wednesday and Retail Sales are released on Thursday.

EUR. The sun swept across Europe on Friday, which may have been one of the reasons why the strength of the single currency melted away against most G10 currencies, although continued worries about Italy’s growing deficit may be a more likely culprit. Today marks the deadline for Italy and other European Union member countries to submit 2019 budget drafts to the European Commission. Market participants are likely to zero in on the Italian coalition’s plans to run a budget deficit as the recent announcement of an intended 2.4% budget spooked markets about the sustainability of Italian debt. This pushed Italian bond yields to the highest level in 4 years, and with S&P and Moody’s ratings reviews later this month, the Italian budget is today’s major euro release.

USD. “Will the dollar find another bout of strength to push higher against G10 currencies?” seems to be a perennial question that may continue this week as the DXY index slipped back into its recent trading range last week despite US yields rising. Developments over the weekend from Donald Trump’s Twitter account may cause some confusion when predicting the greenbacks move this week. Trump lashed out over Human Right violations in Saudi Arabia over the weekend, threatening ‘powerful action’, while Saudi officials responded with threats to not reach their supply quotas; and in turn not ruling out a $100 barrel of oil in the near-term. Today, Retail Sales for September are released at 13:30 BST.

CAD. The loonie had a reasonably positive day on Friday, although this couldn’t prevent CAD from bottoming out against the other major currencies over the week as a whole. In the absence of much economic data coming out, oil prices are an easy scapegoat for this, as WTI lost more than 4% of its value between Monday and Friday. Today promises to be the kick-off of a more exciting week data-wise, with the Bank of Canada Business Outlook Survey due today at 15:00 BST and Retail Sales and CPI figures on Friday.