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Make your mind up Michel

Make your mind up Michel

USD

The US Administration still believes trade tariffs are proving beneficial to the American negotiation position and is considering to slap a new tax on approximately $200 billion worth of Chinese products. The resulting risk-off mood pushed the US Dollar higher against the Euro.

Any trade deal, however, would need Congressional approval and is unclear the Houses will accept a deal without Canada. Risk aversion was fueled by leaked Trump’s “off the record” comments, as he said that any trade deal with Canada would be “totally on our terms.”

With no significant economic data for release due to The US enjoying the Labor Day holiday and trade volume is set to be limited in the afternoon.

GBP

The pound traded with a negative tone at the back end of last week as investors reduced their bets ahead of the meeting between UK’s Raab and the EU’s Barnier. The focus yet again is on the UK’s departure from EU. The pound enjoyed a brief moment of joy after EU’s Chief Negotiator, Michel Barnier, pointed out that the EU is set to propose a ‘deal like no other country’ to the UK.

On the flip side, Sterling has fallen lower at the beginning of this week after Barnier said that he is ‘strongly opposed’ to UK PM May’s proposal on future trade relation between the EU and the United Kingdom.

Theresa May rejected calls for a second referendum over the weekend, stating that such a move would amount to a ‘gross betrayal of our democracy’. She also insists that the country would ultimately thrive in the event of a no-deal Brexit.

The main event today sees the UK manufacturing PMI release that will drop in at 9:30 am. The UK manufacturing PMI is seen accelerating to 55.0 in August versus last.

EUR

Month end finished fairly low against the dollar, at about 1.1600 due to a couple of factors. Firstly Trump announced that he may reject a trade deal with the EU, sparking fears of a trade war by rejecting proposal on EU industrial tariffs. There were also concerns over comments by an Italian official that the 2019 budget deficit could exceed 3% of GDP. Italian-German 10 year spread widened to a 3 month high however Fitch did revise the Italian credit rating from negative to stable – a positive sign.

Euro-zone inflation fell to 2% for August, with the core rate down meaning both measures came in below consensus. Yield spreads moved against the Euro, as did German yields which curbed any support the currency was getting.

From an economic data perspective, the ECB’s Mersch speech is probably the most significant, but there is also Markit MAnufacturing PMI out of Spain, Switzerland, Italy, France, Germany and the UK. The day is rounded off by German Buba President Weidmann’s speech at 18.15.

Data To Watch

07:15 CHF Real Retail Sales (YoY) (Jul)
07:55 GER Markit Manufacturing PMI (Aug)
08:00 EUR Markit Manufacturing PMI (Aug)
08:30 GBP Markit Manufacturing PMI (Aug)
23:01 GBP BRC Like-For-Like Retail Sales (YoY) (Aug)

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