Morning Report 5th of September 2018

5th September 2018

GBP.  The Great British Pound regained some of the ground it lost earlier this week and ranked high among the major currencies after some positive signals out of Brussels regarding the Brexit process. European officials were said to be looking for a way to make the Irish border backstop option more palatable for the UK, which should enable a wider Brexit deal. The Inflation Report Hearing of Mark Carney in Parliament proved to be mostly a non-event with little effect on markets. A better bet on seeing some volatility today may be the Services Purchasing Manager Indices coming out at 9:30 BST

EUR. After a mixed session yesterday euro started this morning off on a better footing on the back of reassuring news from Italy’s budget, though it cannot keep up with dollar strength so far. The League, the smaller and more fiscally conservative member of the new Italian government, had a meeting yesterday to discuss a budget that would remain within the limits set by the European Union budget rules. The Producer Prices in the Eurozone strengthened faster than expected in July with 0.4%, with higher energy prices being the main driver for this. Today the Final Services Purchasing Manufacturing Index will be released at 9:00 BST.

USD. The dollar benefited from a global flight-to-quality as soured sentiments in the Emerging Markets sphere increased market desire for liquidity, which can traditionally be found in the vast dollar market. The Manufacturing PMI for August was a shocker, in the most positive sense of the word, as the reading beat expectations by an enormous margin and rose to the highest level in 14 years. Although another $200 billion of tariffs on Chinese goods may come into effect as soon as this week, manufacturers aren’t put off yet and the Employment, New Order and Production sub-indices of the PMI report all rose. Today the Trade Balance at 15:00 BST will be the main focus for markets data wise.

CAD. The loonie became the worst performing currency of the G10 pack as prospects of a new NAFTA deal seemed to slip further away. Canada’s Prime Minister Justin Trudeau has started to verbally man the negotiatory trenches between the US and Canada with firm rhetoric, once again emphasizing he would rather see the current pact killed than to accept a bad deal. Trade talks are expected to continue today in Washington, vying for domination in the newspaper headlines with the Bank of Canada events of this afternoon. The BoC sends out its newest Rate Announcement into the world today at 15:00 BST accompanied by a Rate Statement. Very much in the background of these events the Trade Balance is released today as well at 14:30, together with Quarterly Labour Productivity.

FX elsewhere:  Another apocalyptic FX horseman appeared to anguish the South African Rand as the second quarter growth missed the expectations and the South African economy slipped into a technical recession. This comes on top of concerns of property rights as land reforms without compensation is a hot topic in South African politics. Together with contagion risk and soured EM sentiment stemming from Turkey, it is not surprising ZAR put fresh two year lows on the board against USD yesterday.