No Deal Brexit Plan
Sterling rose sharply yesterday morning in a technical correction reversing oversold conditions and partially assisted by reduced speculation of an imminent change to Theresa May’s premiership.
Office for National Statistics (ONS) revised the second quarter unit labour costs to 2.4% from the previously stated 1.6%. The positive increase in the data has caused an increase in speculation that the Central Bank will raise interest rates in November as GBPEUR traded at levels of 1.1230 before correcting.
Brexit negotiations resumed and both sides are urging the other to yield concessions in order to break the deadlock. The UK Government also released two white papers on international trade and future EU customs policies which set out necessary preparations for no deal being reached. Theresa May has said in a briefing to Parliament that her government is preparing for all possible outcomes, including no deal being reached with the EU.
The British Retail Consortium (BRC) data recorded a 1.9% YoY gain in like-for-like retail sales from 1.3% previously. This provided Sterling support as GBPUSD traded above 1.3150 after hitting resistance just short of 1.3200.
The Greenback remains underpinned by rising expectations of a Federal Reserve (Fed) rate hike at the December meeting and speculations over the implementation of the tax reform by the Trump administration at some point in Q4, all rendering occasional dips in USD as shallow. Similarly, the surprise drop in September’s headline payrolls figure was largely due to temporary disruption from weather factors and is unlikely to distract the Fed from raising rates in December nor its balance sheet reduction process. Other indicators, such as earnings, continue to point to a labour market that is still on an upward path which would strengthen the case for the Fed to hike.
After climbing to fresh highs around the 94.30 band on Friday, the US Dollar index, which tracks the Buck vs. its main rivals, saw a downturn to the current area of 93.30, where it is looking to stabilize.
It’s been a quiet data week for the Dollar ahead of the key Federal Open Market Committee minutes expected tomorrow and inflation figures tracked by the CPI due on Friday.
The Eurozone Sentix investor confidence index showed a firm reading yesterday, increasing to 29.7 for October from 28.2, beating consensus forecasts. This underpinned confidence with stronger-than-expected German industrial production data, further boosting Euro outlook.
European Central Bank (ECB) council member Lautenschlager yesterday continued her hawkish approach by calling for a gradual removal of monetary stimulus, reducing the rate of bond purchases for the new year. The comments were broadly in line with recent rhetoric from key ECB members, but was also able to cause further Euro support as she also mentioned the aim should be to cease the programme altogether.
The Catalonia referendum will be back in the spotlight today as the market will look on to see how events unfold in Spain. The risk for instability and contagion are clearly factors that could unsettle investor sentiment and ultimately weigh on the single currency.
Data To Watch:
24h EUR EcoFin Meeting
09:30 GBP Manufacturing Production (YoY) (Aug)
09:30 GBP Industrial Production (YoY) (Aug)
09:30 GBP Manufacturing Production (MoM) (Aug)
09:30 GBP Industrial Production (MoM) (Aug)
09:30 GBP Trade Balance; non-EU (Aug)
09:30 GBP Goods Trade Balance (Aug)
09:30 GBP Total Trade Balance (Aug)
13:00 GBP NIESR GDP Estimate (3M) (Sep)
15:00 USD FOMC Member Neel Kashkari (Speech)