Increased divorce settlement May keep us on track
Sterling sentiment was again undermined by political uncertainty after two ministerial resignations and Boris Johnson under pressure to resign. Perceived weakness in Theresa May’s leadership will only lead to expectations that Brexit negotiations will be undermined. EU Chief Negotiator Michael Barnier reiterated that a withdrawal agreement was necessary before trade talks could begin.
The EU Commission lowered its Gross Domestic Product (GDP) forecasts for the UK with growth of 1.1% for 2019 after 1.3% in 2018, however, suspicions have arisen that the forecasts were politically motivated.
Following yesterday morning’s trading session close, there were reports that Prime Minister Theresa May is willing to increase the UK settlement payment in order to progress with the Brexit negotiations. These reports increased the optimism that trade talks would start and Sterling recovered. Binder Dijker Otte (BDO) data indicated a sharp decline in October retail sales, although political sentiment tended to dominate ahead of the industrial production release, with Sterling unable to gain sustained support and trading at levels below 1.3150 against the Dollar.
On an annualized basis, the industrial production for September is expected to come in slightly better, at 1.9% versus 1.6% previously, while the manufacturing output figures are seen arriving at 2.4% in the reported month versus 2.8% for the previous month. Meanwhile, industrial production is also expected to show a 0.3% increase m/m in Sept, as compared to a 0.2% gain recorded previously.
The US Dollar has been trading in a tight range against a basket of other major currencies for the past two weeks as uncertainties surrounding US monetary and fiscal policies have pushed and pulled the Greenback.
US jobless claims increased to 239,000 in the latest week from 229,000 and slightly above consensus forecasts, although the four-week moving average declined to the lowest level since 1973, maintaining underlying confidence in the labour market.
From a fiscal policy perspective, the introduction last week of a new tax plan by the US House of Representatives helped give the Dollar a temporary boost. This week, however, doubts regarding tax reform began to arise as the Senate prepared to introduce its own tax bill that diverges from the House plan. This is likely to mean delays or difficulties in getting the highly anticipated tax reforms in place, which has weighed on both the US Dollar and equity markets.
In the US data space today, we see the advanced gauge of the US consumer sentiment measured by the Reuters/Michigan index for the current month.
The Euro managed to gain support yesterday as a combination of firm data and European Central Bank (ECB) member speeches made the single currency stronger across the day.
Eurozone GDP growth forecast for 2018 was 2.1% for the Autumn projections with a healthy 2.2% growth for the year which gave the Euro a firm tone. The single currency strengthened against its peers, reaching lows of 1.1266 against the Pound and highs of 1.1653 against the Dollar.
Hawkish comments from ECB officials yesterday further added to Euro gains. Rhetoric was directed towards a further reduction in monetary stimulus if inflation continues to show signs of rising; ECB member Coeure, in his speech, believed that the current expansion of the Euro was the greatest it has been for 20 years.
These speeches were coupled with German bunds yields moving stronger across the day, all adding to the net support for the Euro.
Data To Watch:
09:30 GBP Manufacturing Production (YoY) (Sep)
09:30 GBP Industrial Production (YoY) (Sep)
09:30 GBP Industrial Production (MoM) (Sep)
09:30 GBP Manufacturing Production (MoM) (Sep)
13:00 GBP NIESR GDP Estimate (3M) (Oct)
17:00 USD Baker Hughes US Oil Rig Count