Morning Report: 17 October 2018

17th October 2018

GBP. With little coming from yesterday’s impromptu cabinet meeting apart from the lack of support for May’s Irish border opt-out solution, Michel Barnier stated last night that he was open to fresh ideas such as a two-tier transition period to get a deal struck. This is the sign of the first concession by the EU and could see the 21-month period, after March 2019’s deadline, extended by an extra year to negotiate the finer details of the Irish border. A deal being submitted to the EU commission by Wednesday is practically off the cards now, with many suggesting November/ December being the more likely timeline for a deal to be presented. Frustrations are growing on both sides, and the cracks are starting to widen in negotiating stances. As Brexit news peters out, investors will be looking towards today’s inflation data for both the consumer and producer. CPI, the Bank of England’s favoured measure, is expected to moderate to 2.3% YoY as fuel pressures subdue and risks are tilted to the downside for this release.

EUR. EURUSD was flat as a pancake yesterday on a day that was mildly euro negative, but overall developments elsewhere held the euro out of the limelight. Data painted an ominous lining around the Eurozone economic outlook, with German ZEW Economic Sentiment unexpectedly slumping to a score of -24.3 for October, while the Italian Trade Balance surplus came in at almost half what was expected at +2.56 billion euro for August. Today sees Final CPI for the Eurozone at 10:00 BST and the start of the EU Economic Summit, which might see some discussions on the Italian budget, but will most likely be dominated by Brexit talks.

USD. Trump’s twitter was the main dollar story yesterday. His controversial tweets did little to move markets, however. Included in yesterday’s barrage of comments, he reverted back to slamming the Federal reserve, labelling them the “biggest threat” in an environment of very low” inflation. Ultimately, the greenback remained in the middle of the G10 currency board but today’s price action may prove more exciting given the release of September’s Federal Reserve Meeting Minutes. This release will be scoured to get any further information from Fed officials on their outlook for inflation as the controversial long-term rate is considered too low given current inflationary risks.

CAD. The loonie strengthened for the fourth trading day in a row against USD, on a day that CAD had little to fear from other G10 currencies as well, despite unconvincing data. Foreign Security Purchases showed their biggest disappointment compared to the forecasts since February this year and came in at 2.82 billion CAD worth of Canadian asset purchases, where more than 10 billion was expected. Not for the first time this year higher crude oil prices may have delivered a saving grace to the loonie in the end, as WTI rose more than a percent on the day. Today sees Manufacturing Sales at 13:30 BST.