Sterling traded marginally lower yesterday, as the General Election campaign was in full swing, producing various headlines of mixed relevance for financial markets. This morning’s data included the British Retail Sales Consortium’s Retail Sales Monitor, which rose 0.1% year on year in October, a marked improvement from the 1.7% contraction in the index in September. Elsewhere, the House of Commons last night elected Lindsay Hoyle, a Labour MP, as Speaker of the House of Commons last night. Hoyle is expected to take a less active role than the previous speaker. There was plenty of hot takes from various sources on the implications of the election on the pound, for example, Bloomberg Intelligence’s view that should the General Election suggest a second EU referendum is possible, sterling could rally despite continued economic uncertainty. The Services Purchasing Managers’ Index will be released today at 09:30 GMT.
The euro took a 0.3% hit yesterday as the US dollar made broad inroads on positive trade headlines against G10 currencies. There was little support for the single currency coming from the data calendar. While Germany’s October manufacturing PMI was revised up from 41.9 to 42.1, lifting the Eurozone wide manufacturing index, it still marked a contraction in the German manufacturing sector. Similarly, the Sentix Eurozone investor confidence index beat expectations of -13.8 to post -4.5, but like that of the manufacturing PMI it still remained in negative territory. The data calendar remains light for the Eurozone, with only Septembers PPI release out at 10:00 GMT. Inflation indices are a key driver for the euro, with subdued inflation pressures tainting the ECB’s outlook.
The US dollar DXY index rallied 0.3% yesterday, with the greenback making the most ground against the Scandies and Japanese yen. Positive trade sentiment also caused equity markets to carve fresh highs; the Dow Jones Industrial Average hit an all-time high of 27517 while European and Chinese equity markets also rallied. Both the onshore and offshore yuan tentatively dipped below the psychological 7.00 level despite the PBOC surprisingly lowering mid-term funding costs for the first time since 2016 to soothe liquidity concerns in bond markets. The risk rally may continue today after President Xi Jinping said China will focus more on imports and lower tariffs at a trade expo in Shanghai. Despite President Xi not discussing the US directly, positive trade headlines in general added to improving market sentiment. Further, the Financial Times leads today’s paper with the story that White House officials are debating whether to remove a 15% tariff on $112bn of consumer products imported from China. The tariff was imposed on September 1st and such a move would show the first material de-escalation of the Trade War since its inception, further helping risk sentiment in the market. While officials have already suspended the planned tariff increase in October, the December 15th deadline still remains intact. The potential imposition of tariffs on $156bn in December remains a key sticking point for Chinese officials, who want the threat taken off of the table prior to singing a phase one deal. Both parties are seemingly closer to signing the narrow trade deal, subject to a location being approved. The data calendar for the US today features the final reading of October’s services and composite PMI, but no change from the flash reading is expected. Trade headlines will likely continue driving US asset pricing today.
The loonie was put on the back foot yesterday but fared better than other G10 currencies as the improvement in risk sentiment spurred on crude prices which helped CAD against a strengthening US dollar. Oil prices have continued their rally again this morning, helping the loonie reverse all of yesterday’s losses in this morning’s session. Despite US front-end yields rising on positive trade headlines, which prompted traders to trim their bets on further Fed rate cuts, Canadian front-end yields rallied more, pushing the spread back into negative territory favouring the loonie. Improving trade headlines reduces the risk of an insurance rate cut by the BoC. There is no scheduled top-tier data for the loonie today.