Sterling’s gains from Monday began to erode yesterday, with the losses extending this morning. Boris Johnson and Jeremy Corbyn squared off in a television debate last night, exchanging barbs on the NHS, trust, and of course Brexit. There was little in the way of meaningful policy debate or new information on the party platforms, and a snap poll taken by YouGov after the debate showed a close 51-49 split in favour of Johnson. Yesterday’s lone major data release was the Confederation of British Industry’s Industrial Order expectations index, which rose to -26, still in contractionary territory but less dire than the previous -37. Pressure from Brexit uncertainty eased, but global factors continued to weigh on the outlook, according to CBI economists.
The euro continued to trade in a tight range yesterday and this morning, amid thin news flow. German Producer Prices contracted 0.2% in October, bringing the year on year change to -0.6%. Energy prices drove much of the decline, with durable consumer goods still rising at a healthy clip. Non-perishable goods inflation was also healthy, with the price of swine meat rising a whopping 25% year on year, consistent with the global shortage in the meat stemming from supply issues in China. The healthy price rises in these categories suggest the contraction in overall producer prices is unlikely to turn many heads at the European Central Bank, which also released its Financial Stability Review today. The review noted the potential negative effects of the ECB’s own quantitative easing program, such as excessive risk-taking by asset managers and insurers. Another risk is the potential shortage of safe government assets as a form of collateral in euro-area repo markets, which are important for interbank lending.
The dollar traded mixed against the G10 yesterday with conflicting headlines filtering through regarding the progress made in the phase one US-China trade deal. Bloomberg reported yesterday that the near-deal between the US and China which fell apart back in May due to key sticking points such as intellectual property theft is being used as a benchmark in the phase one deal to determine how much of the current tariffs should be rolled back. The two sides are locked into tough negotiations which could bear fruit anytime in the near future, but the news coming from the White House is mixed. Trump doubled down on his threats last night stating that if China refused to sign the narrow trade deal, tariffs will be increased further. Markets are taking the message loud and clear as global economic data continues to show signs of fatigue under the current protectionist regime, with haven assets marginally higher this morning. Tonight, the Federal Reserve release minutes from their latest monetary policy meeting, but very little is likely to be added from Chairman Powell’s recent testimonies and discussions with Donald Trump.
The loonie fell a third of a percentage point in yesterday’s US session as Bank of Canada’s Deputy Governor, Carolyn Wilkins, reiterated the central bank’s dovish tones as the speech focused on complacency in monetary policy in a time of growing global uncertainty. The loonie sold off as Canadian yields ground lower due to discussions by the BoC regarding an insurance rate cut at their last meeting resonating in investor’s minds. Meanwhile, US Congress’ Ways and Means Chairman Richard Neal said the USMCA trade agreement could be finalised by Christmas but Democratic representative Rosa DeLauro says there has been no progress in negotiations in recent days. Today, the loonie faces fresh inflation data at 13:30 GMT with no move in inflation measures expected.