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UK receives hope of a major free trade deal

UK receives hope of a major free trade deal

GBP
Sterling received some support yesterday after UK benchmark bond yields declined less than German bond yields with overall spreads peaking at fresh 10-year highs. Further sharp gains in oil prices, caused by an anti-corruption purge in Saudi Arabia, also provided net support to the Pound during the day after Brent crude advanced above $64 per barrel, a two-year high.

Despite further concerns surrounding the domestic political situation amid further allegations of misconduct by members of the political establishment, there was no significant negative impact on Sterling. US Trade Secretary Ross stated that the US wanted the UK to be its largest global trade partner.

Overall, the Euro retreated sharply to lows around 1.1350 while the Pound clawed back some ground to peak around 1.3175 against the Dollar. The latest BRC retail sales data recorded a 0.9% annual like-for-like decline for October, the sharpest decline since October 2008. The data maintained doubts surrounding consumer spending and Sterling edged lower on Tuesday.

USD

Last week, the US Dollar had its best week over the last year, rising 1.3% against a broad basket of its major counterparts as the Republicans released their tax bill. The economic data continued to show the economy growing at a robust pace in October.

The October employment report did, however, raise questions about the outlook for US interest rates as it shows wage growth slowed sharply to just 2.4%, its lowest since February 2016, and followed inflation data released earlier in the week which also slowed.

Trump’s choice of Jerome Powell as the next Fed Chair represents continuity in the Federal Open Market Committee and, by extension, continuity to the gradual Fed rate normalization process. Therefore, we are comfortable in maintaining our present Fed rate trajectory into 2018.

The US Dollar is generally unchanged today so far after rallying strongly last week. Amid a lack of economic data, the focus turns to the tax bill that will now be subject to the various party’s amendments, as well as special interest group lobbying. Trump’s visit to Asia will also be a focused feature as he seeks better trade relationships. Also, the IBD/TIPP index is due, seconded by JOLTs job openings and the speech by Chief J.Yellen.

EUR

Despite some firm data for the Eurozone yesterday showing signs of reflationary forces, three-month lows for German bund yields undermined the Euro. The single currency retreated back to lows of 1.1351 against the Pound where it plateaued, whilst against the Dollar, lows of 1.1582 were reached before announcement of NY Fed Dudley gave the Euro some relief.

The PMI services sector index saw an improvement for October with output prices strengthening at its fastest pace since March this year and coupled with a rise in employment at its fastest pace for 10 years.

Further, sentix investor confidence rose to its highest point since 2007 last month reaching 34.0 from 29.7 the previous month. Oil prices also strengthened across the day whilst producer prices for September were revised upwards to 0.6% with y/y index increasing to 2.9%. The Eurozone yesterday did, therefore, show that underlying factors for a reflationary push are present.

Today, European Central Bank (ECB) President Draghi will talk with regards to his recent decision on the asset purchase programme whereby he will be responding to a much-improved regional economy.

Data To Watch:

00:01 GBP BRC Like-For-Like Retail Sales (YoY) (Oct)
09:00 EUR ECB President Draghi’s Speech
n/a EUR EcoFin Meeting
19:30 USD Fed’s Yellen Speech
20:00 USD Consumer Credit Change (Sep)

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