News & analysis

GBP

After posting nearly a full percentage point decline in yesterday’s session, sterling continues to trade on the back foot this morning where it is already down over 0.4% against the dollar. Yesterday, concerns around Brexit negotiations continued to drive the pound lower as Boris Johnson’s self-imposed Brexit deadline, Thursday the 15th October, rapidly approaches with no deal in sight. Areas of contention such as state aid and fishing rights are yet to be bridged, meaning a narrow trade deal ahead of tomorrow’s EU summit is unlikely. While both sides agreed that the hard deadline for talks to conclude is the end of October, allowing enough time for businesses to adjust and legislatures to ratify the deal into domestic law, Johnson previously stated that the UK is ready to “walk away” if negotiations don’t bear fruit prior to tomorrow’s summit. Yesterday’s headlines suggest that the EU summit will begin without a deal in place, meaning market pricing reflects investors merely bracing for the potential fallout. However,  there is a risk that this hard rhetoric from Johnson is just that – rhetoric. The game of brinkmanship has kept markets guessing, and with both eurozone and UK economies ailing from the Q2 hit, the broad consensus remains that talks will continue until the end of the month. The hard stance taken by Johnson may have been to rush negotiations along, or even force the EU’s hand towards offering more concessions in trade talks, however, the risk remains that tomorrow’s EU summit spells the end of trade negotiations and thus the beginning of no-deal exit preparations. The focus will be on headlines ebbing from trade negotiations today, while the Prime Minister takes questions in parliament at 12:00 – 13:00 BST.

EUR

New lockdown measures and an ever-rising case count have made it challenging for the euro to hold onto last week’s gains, while the US fiscal impasse has weighed on risk on risk sentiment. Yesterday’s ZEW survey expectations index from Germany printed a big miss at 56.1 down from last month’s 77.4. While markets had no expectations of the figure exceeding last month’s 20-year high, the median of forecasts submitted to Bloomberg still stood far higher at 72.0. With any positivity stemming from the data point more than offset by a bleak current expectations index and the announcement of further lockdown measures, EURUSD did not show an immediate reaction to the release. In the evening, the Netherlands announced a partial lockdown, with cafes, bars and restaurants to be shut for at least the next four weeks. For today, the focus turns to the eurozone industrial production from August. According to Bloomberg’s consensus, the year-on-year figure is set to remain broadly unchanged at -7.0%, but the month-on-month number is expected to show a sharp contraction from 4.1% in July to 0.8% in August. With the virus situation in the eurozone having only worsened since August, a better-than-expected reading may be taken with a pinch of salt as chances are industrial output has only deteriorated since then. Throughout the day, five European Central Bank members will speak, with ECB President Christine Lagarde starting the round of speeches at 09:00 BST. and ECB policymaker Pablo Hernandez de Cos having the final speech at 15:15 BST.

USD

The dollar has managed to maintain some of the tentative momentum it began to pick up at the beginning of the week over the past 24 hours, making progress against NOK, SEK, and AUD among others. The prospects for further fiscal stimulus before the Presidential election seem to have dimmed further, after Democrat House Speaker Nancy Pelosi once again rebuffed the latest offer of stimulus from the White House. Pelosi reportedly warned that any deal offered by Trump would cut back on Democrat policy priorities, and in a letter to colleagues said “the President only wants his name on a check to go out before Election Day and for the market to go up”. The US data calendar began to pick up again yesterday after Monday’s public holiday, with the NFIB small business optimism index rising to 104.0, the highest reading since March. Today at 13:30 BST, producer price data will be released, followed by speeches from the Federal Reserve’s Clarida, Quarles, and Kaplan at 14:00, 15:30 and 11:00 respectively.

CAD

After driving higher to sit at one-month highs in yesterday’s session, the loonie witnessed a sharp turnaround in the afternoon session and closed 0.2% lower on the day. Yesterday’s headlines saw consumer confidence data record its largest one week drop in the week ending October 9th since April, reflecting Canada’s two largest provinces, Ontario and Quebec, entering a 28-day lockdown. Meanwhile, former Bank of Canada Governor Stephen Poloz spoke at Bloomberg’s virtual Canadian Fixed Income Conference yesterday, where he stated that monetary policy in Canada is reaching its limits. Poloz outlined that rates are unlikely to go into negative territory in Canada given the active nature of Trudeau’s fiscal policies, but servicing the high debt levels is likely to be key for markets going forward. Poloz deemed the fiscal expenditures progressive, stating they’re being used to drive productivity and thus economic growth in the long run, while stating on the record that he believes rates will remain low in the coming decade to facilitate the dramatic rise in fiscal deficits. Meanwhile, oil markets toyed with the idea of a $40 barrel as data from China and Italy saw crude imports rise. In China, crude imports rose 2.1% in September, while Italy’s crude imports increased by 12% in August. Today, focus will be on US crude inventories at 15:30 BST as a clouded demand outlook continues to weigh on oil prices, while BoC Deputy Governor Tim Lane speaks on a digital currency panel at the same time.

 

DISLCAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.