“No confidence” close to tipping point
UK CBI industrial orders fell below forecasts at -6 for October from -1 previously, and indicating reduced order expectations in the manufacturing sector. Both domestic and overseas orders reduced sharply with strong evidence that Brexit uncertainty was undermining orders and investment which hit Sterling sentiment. Reports also surfaced of a caustic Cabinet meeting and that resignation calls for Theresa May were close to the tipping point that would instigate a leadership contest.
Reports that the EU might offer a UK-wide customs union triggered a sharp Sterling recovery. The conditions attached wouldn’t be as favourable as those proposed by the UK government, reinforcing concerns that the Brexit deal wouldn’t pass through parliament. Weaker risk appetite and oil prices prevented the Pound from remaining above 1.3000 against the Dollar and the Euro hovered around 1.1325.
Sterling opened this morning at 1.1318 against the Euro and 1.2974 against the Dollar. Today, Theresa May will address the 1922 committee of Conservative MPs and ‘no deal’ speculation continues to hamper the Pound.
The US Dollar was down against rival currencies in the early stages of yesterday after disappointing earnings announcements from 3M and Caterpillar.
The Philadelphia Fed non-manufacturing index increased slightly to 37.6 for October from 37.4 previously, although there was a dip in most components with a slight easing of pricing pressures. In contrast, the Richmond survey recorded stronger inflation pressures.
President Trump repeated his criticism of both Federal Reserve (Fed) interest rate increases and the actions of Chair Powell. There were also hints that he could consider removing Powell, although the immediate market reaction was limited as equities dominated.
Bullish comments from Atlanta Fed President Raphael Bostic lifted the Dollar yesterday afternoon as he explained he would favour a 4th rate hike this year. Expectations of strong Q3 GDP made him more comfortable with a 4th rate increase this year, however, we’re still trying to understand how quickly strong recent growth might dissipate.
The EU Commission formally rejected Italy’s 2019 budget proposal and has given the Italian government three weeks to come up with a new one. In the morning, Italian PM Conte has said there was no “plan B” which only served to fuel market concerns over a conflict with the EU.
Italian bonds declined further as well as a sell-off in global equities due to geopolitical tensions meaning, versus the Dollar, the Euro hit the 1.1450 level. There was a slight rally in the afternoon but the pair settled by the evening.
Wednesday sees a much busier day of data. PMI numbers out of France, Germany and Europe should gain some interest. Mortgage approvals out of the UK, as well as the Italian trade balance, make up the remainder of the data for today.
Data to Watch:
08:30 EUR Markit Manufacturing PMI (Oct)
08:30 EUR Markit Services PMI (Oct)
08:30 EUR Markit PMI Composite (Oct)
09:00 EUR Markit Services PMI (Oct)
09:00 EUR Markit Manufacturing PMI (Oct)
09:00 EUR Markit PMI Composite (Oct)
14:00 USD Housing Price Index (MoM) (Aug)
14:45 USD Markit Services PMI (Oct)
14:45 USD Markit PMI Composite (Oct)
15:00 USD New Home Sales (MoM) (Sep)
15:00 CAD Bank of Canada Monetary Policy Report
15:00 CAD BoC Interest Rate Decision
15:00 CAD BoC Rate Statement
16:15 CAD BoC Press Conference
16:30 USD Fed’s Bullard speech
18:00 USD FOMC Member Bostic speech
18:10 USD FOMC Member Mester speech
19:00 USD Fed’s Beige Book
22:45 NZD Trade Balance (MoM) (Sep)
22:45 NZD Trade Balance (YoY) (Sep)
22:45 NZD Exports (Sep)
22:45 NZD Imports (Sep)