No confidence? Already?
Political developments remained important on Friday with further manoeuvrings by MPs opposed to the possibility of any ‘no-deal’ exit from the EU on October 31st. In relative terms, the solid data releases for the week provided net support.
CFTC data recorded a small decline in net short, non-commercial positions, but the total remained close to 100,000 contracts and there is still scope for substantial liquidation and short-covering if there is a sustained shift in sentiment.
Weekend headlines were dominated by ‘no-deal’ preparations and markets will be watching Prime Minister Johnson’s planned meetings with German Chancellor Merkel and French President Macron this week with Sterling firm in early Europe. There was also talk of senior Tories urging Boris Johnson to call a snap election to restrain a no-confidence vote.
The University of Michigan consumer confidence index declined to 92.1 for the preliminary August reading from 98.4 previously and well below consensus forecasts of 97.2. Current conditions retreated while there was a sharper retreat for the expectations component which triggered some reservations over potential spending trends.
Minneapolis Federal Reserve (Fed) President Kashkari stated that the US needed to pull back on interest rates as it was better to be early and aggressive in responding to a slowdown. Cleveland head Mester, traditionally one of the more hawkish members, stated that there were downside risks to the economy. Market expectations of a 0.50% September rate cut were still limited at 16%.
From 2-week lows below 1.1070 the against the dollar, it rallied to close around 1.1100 and was held in very tight ranges just below this level on Monday as resistance held.
The Euro is at the mercy of the German bond yields amid rising dovish European Central Bank expectations and talk of German fiscal boost. The yield on the German 10-year bond remained under pressure throughout the last week as investors turned to safe haven assets on fears of a European recession.
German yields could possibly rise this week on positive fiscal stimulus hopes and possible upside, if any, will likely be capped around 1.1160. As of writing, the EUR/USD is trading at 1.11 continuing its drop for the fourth successive session.