Morning Report: 26 September 2018

26th September 2018

GBP. Sterling continues to top the G10 currency board as yesterday the pound gained 0.5% against the dollar. Little news came from the Labour Party Conference apart from a growing division over a second referendum, but it is now clearer that the Labour Party will reject any Brexit deal proposed by May. This forces the Conservatives to pull together, and makes the Prime Minister’s job much harder as she needs a deal that pleases both sides of her party. Today, Labour Party leader Jeremy Corbyn takes to the stage to give a much anticipated speech as the annual conference comes to an end. Comments regarding the official party stance on Brexit will be hastily listened to, along with huge public investment pledges that have been suggested by national newspapers. Bloomberg has reported that Jeremy Corbyn will meet EU officials in Brussels in the coming days as the November timeline draws ever closer.

EUR. Political uncertainty couldn’t hold the single currency back yesterday as Germany’s Prime Minister Angela Merkel suffered a sensitive defeat in parliament while the euro remained untroubled and staged a minor rally against most of the G10 currencies. For the first time since Merkel took office 13 years ago, her preferred candidate to lead the Parliament, in this case her trustee Volker Krauder, was outvoted by Ralph Brinkhaus, who pledged to be more independent than Krauder. Meanwhile, markets hold their breath for what fiscal dramas the new Italian budget released tomorrow might contain.

USD. Not much happened at yesterday’s UN General Assembly meeting when compared to last year. Donald Trump still got a few laughs, despite them being at his expense when he claimed that his administration has accomplished more than almost any in US history. The dollar only lost out to NOK, EUR and GBP out of the the G10 currencies yesterday, but is trading flat this morning ahead of tonight’s Fed meeting. Fixed Income markets have all but priced in another 25 basis points raise by the Fed at 19:00 BST tonight, but due to the markets’ aggressive pricing, the actual increase in rates will do little to spur on the dollar. However, the Fed will announce their dot plot for 2021 tonight, and possible tweaks to the dot plot for next year may occur as further tariffs between the US and China have been implemented. Any adjustment to monetary policy statements or forward guidance measures that suggest the Fed will be more hawkish in light of further tariffs could be sufficient to cause a dollar rally.

CAD. The loonie is establishing itself firmly below an important USDCAD psychological level, while Brent and WTI crude oil prices seemed to have settled equally comfortably above the $80 and $70 price per barrel respectively. NAFTA negotiations still appear to be stuck in a rut, with a senior US official reporting to Reuters that Canada is running out of time to make the proper concessions to the US. This sounds ominous, but could also be brushed aside as increasing the pressure on Canada to compromise as a negotiation tactic. This is exactly the interpretation a spokesman of the Canadian Ministry of Foreign Affairs gave by saying that the focus of Canada is on “substance over timelines”