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Theresa’s tepid supper and grilled BoE

Theresa’s tepid supper and grilled BoE

GBP
The Pound traded sideways yesterday before dropping sharply during the late afternoon after Bloomberg reported a breakdown in Brexit negotiations and a lack of progress as time runs out. Fears that the EU will refuse to compromise on a divorce payment saw Sterling drop as much as 0.3% against the Dollar.

This morning, Bank of England (BoE) Monetary Policy Committee (MPC) members Silvana Tenreyro and Deputy Governor Sir David Ramsden make their public debuts before the Treasury Select Committee to discuss their views on the economy, followed by Governor Mark Carney. The session will provide further clarity on the likelihood of a 0.25 % rate hike in November, and with the hike 85% priced in, there is room for disappointment.

September’s CPI inflation figures are due today but they may arrive too late to substantially affect BoE members’ views leading into the November Monetary Policy decision. The CPI figures are expected to tick higher to 3.0% in Sept y/y, while core figures, excluding food and fuel costs, are also expected to accelerate slightly to 2.8% in the reported month. Mark Carney will have to write to the Treasury if inflation hits 3.1% or higher.

Theresa May and EU Commission chief Jean-Claude Juncker agreed last night that Brexit talks should accelerate, but there was little evidence that their dinner in Brussels broke the deadlock in negotiations.

USD

The US Dollar remains underpinned by Janet Yellen’s comments on Sunday, that she expects the US economy to grow and will gradually increase interest rates, while the potential appointment of J.Taylor as the Fed’s next Chairman gave a brief spark to the currency. According to market participants, Taylor has a more hawkish message and could surely be a source of potential upside for the Buck.

There was ample upside potential for the Dollar a couple weeks ago, however, this has been short-lived with a December Federal Open Market Committee (FOMC) hike now almost fully priced in. It is becoming more and more apparent that key Senate Republicans are likely to oppose a large tax cut on cost grounds.

In today’s US data space, industrial and manufacturing production figures are due, seconded by capacity utilization, the NAHB index, TIC flows, and the speech by Dallas Fed R.Kaplan.

EUR

With a very quiet day in the market yesterday, Euro investors’ eyes turned towards the situation in Spain and the Consumer Price Index (CPI) data out today.

Against the Pound, the Euro strengthened across the day, reaching lows of 1.1218 late in the afternoon before weakening off again to close 1.1269. Up against the Dollar, the Euro failed to provide investor confidence, falling from morning highs of 1.1814 to close at 1.1766.

Catalonia continues to cause uncertainty, posing a threat to Spanish assets, but the impact on the Euro was limited. The developments yesterday were that Spain, in a transition seen as moving Madrid one step closer to taking central rule over Catalonia, imprisoned the leaders for two of the largest separatist organisations.

Today, ZEW investors sentiment for Germany and, more importantly, Economic and Monetary Union of the European Union (EMU) Core Price Index (CPI) data are out. Core CPI data is expected to keep the same at 1.1% whilst CPI including food and oil prices is expected at 1.5%.

Data To Watch:

09:20 EUR ECB Vice President Vitor Constancio speech, 08:30am GBP Producer Price Index – Output (MoM) (YoY), n.s.a (Sep)
09:30 GBP PPI Core Output (MoM) (YoY) n.s.a (Sep), GBP Producer Price Index – Input (YoY) (MoM) n.s.a (Sep), GBP Core Consumer Price Index (YoY) (Sep), GBP Consumer Price Index (YoY) (MoM) (Sep)
10:00 EUR ZEW Survey – Economic Sentiment (Oct), EUR ZEW Survey – Current Situation (Oct)
10:30 EUR ECB’s Praet Speech
11:00 EUR Consumer Price Index – Core (MoM) (Sep), EUR Consumer Price Index (YoY) (Sep), EUR Consumer Price Index (MoM) (Sep), EUR Consumer Price Index – Core (YoY) (Sep)
11:15 GBP BOE’s Governor Carney speech
14:15 USD Industrial Production (MoM) (Sep), USD Capacity Utilization (Sep)
15:00 USD NAHB Housing Market Index (Oct)
18:00 USD FOMC Member Harker Speech
19:00 USD Monthly Budget Statement (Sep)

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