Global economy worries favour the Dollar
UK CBI industrial orders strengthened to 10 for November from -6 previously and overall confidence increased. The Bank of England was understandably cautious in testimony to the Treasury Select Committee; Mark Carney stated that investment was likely to recover with a Brexit deal, but there would be a sharp slide if not. He added that he expected a further gradual increase in wages growth and reiterated that interest rate moves depended on the outcome of Brexit negotiations. Other MPC members expected higher medium-term rates, but slower fourth-quarter growth.
With Sunday’s EU special Summit drawing closer, political tensions remain high, although with both politicians and markets assessing the underlying situation, there was a period of relative calm. The planned no-confidence vote on Theresa May seems to have stalled but there remains serious opposition to the Withdrawal Agreement within parliament. Many EU officials including Irish Foreign Minister Coveny stated that the Agreement would not be re-opened.
The Pound slipped below 1.1235 against the Euro and dipped below 1.2800 against a Dollar shored up by safe-haven flows. Today’s only data is Public Sector Net Borrowing at 9:30am, Mark Carney speaks at 3pm and Theresa May meets with EU Commission President Jean-Claude Junker later this afternoon.
The US Dollar and safe haven currencies attracted major inflows yesterday amidst a global sell-off in equity markets. Dovish comments from the Federal Reserve (Fed) that the world economy may be cooling off has darkened investor sentiment.
US housing starts increased slightly to an annual rate of 1.23mn for October from 1.21mn while building permits were little changed at 1.26mn with both figures fractionally above consensus forecasts. The Philadelphia Fed non-manufacturing index strengthened for November which provided some relief.
Minneapolis Fed President Kashkari reiterated his view that the Fed should pause the process of rate hikes to see how the economy evolves. There were still underlying reservations surrounding the US outlook, but the Dollar gained significant defensive support as global risk aversion intensified.
Today across the pond we see Durable Goods Orders, Initial Claims, Existing Home Sales and the final U-Mich index results ahead of tomorrow’s Thanksgiving Day holiday.
Italian deputy Prime Minister Di Maio was confident that budgetary issues can be solved, but he favoured keeping the main budget points intact. Further widening of German-Italian yield spreads to a five-year high undermined Euro sentiment. Concerns surrounding the Greek and Italian banking sectors increased ahead of today’s EU Commission response to the Italian budget. From highs around 1.1470, the Euro dipped sharply amid wider Dollar gains with lows near 1.1360 before a recovery this morning as Dollar demand faded slightly.
Data to Watch:
n/a EUR European Commission decision on Italy
04:30 JPY All Industry Activity Index (MoM) (Sep)
08:00 EUR Non-monetary policy’s ECB meeting
09:30 GBP Public Sector Net Borrowing (Oct)
13:30 USD Initial Jobless Claims (Nov 16)
13:30 USD Continuing Jobless Claims (Nov 9)
13:30 USD Durable Goods Orders (Oct)
13:30 USD Durable Goods Orders ex Transportation (Oct)
15:00 USD Existing Home Sales (MoM) (Oct)
15:15 GBP BOE’s Governor Carney speech
16:30 GBP UK PM Theresa meets EC Juncker
23:30 JPY National CPI Ex-Fresh Food (YoY) (Oct)
23:30 JPY National CPI Ex Food, Energy (YoY) (Oct)
23:30 JPY National Consumer Price Index (YoY) (Oct)
23:50 JPY Foreign investment in Japan stocks (Jan 18)
23:50 JPY Foreign bond investment (Jan 18)