13th November 2018 Market Update
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?? EUR – With plenty of downside risk surrounding the Euro at the moment including disappointing growth, the Italian Budget standoff as well as the ongoing threat of Brexit – we should also not forget about the upcoming danger of the US tariffs on autos. Previously, Jean Claude Juncker had gained a short-term reprieve for Europe as the negotiations for a European-US trade agreement were ongoing, but with patience running out on the US side, Trump could well look to implement these tariffs at some point in the near future. For today, the market is holding its breath as the deadline for the Italian response to the EU Commission on their latest rejected budget is finally here; it remains difficult to see Italy coming back with anything material at which point the EC must consider whether sanctions are a suitable retort. Datawise, expectations are for soft data around the German economic sentiment which should lay the foundations for a poor Q318 GDP in Europe’s largest economy tomorrow.
?? GBP – Today we saw the release of UK wage and employment data which came out largely in line despite expectations amongst some analysts for a higher figure. Given that the Bank of England uses wages as one of their main guides on inflation, the stronger figure would have helped strengthen the longer term plans to increase interest rates in the UK, pending a positive Brexit conclusion of course. And this, if you believe the latest headlines, is looking more likely as negotiations are in the ‘end game’ according to Theresa May as both parties are said to want to complete a deal; her speech yesterday was met with an overwhelmingly warm reception. In addition, her claims were supported by David Lidington, a key British cabinet officer who said that a deal was still possible in the next 24 to 48 hours. Whilst we have heard such well-timed soundbites in the past – we don’t have to wait long before our next Brexit update as today will also see PM Theresa May meet her cabinet. Prior to this weekend, there had been hopes of more significant Brexit progress at today’s meeting, but overall expectations remain low.
?? USD – The Dollar, despite a closed US market yesterday – managed to hold onto the majority of its gains meaning that it continues to trade near its highest levels of 2018 amid expectations of higher US interest rates and calming tensions between the US and China. Looking ahead today the only data out is the October release of the NFIB small business optimism index. While this isn’t top tier data by any means, small businesses are important in the US economy given they are a key marginal employer and so a good read would help the Dollar to consolidate near its most recent highs. In addition, tomorrows October CPI will likely provide further impetus for the burgeoning currency as long as we see headline inflation above the Fed’s target rate of 2 per cent.
EUR: D-Day for Italian response on rejected budget; European Commission currently debating appropriate response for failure to comply;
GBP: Brexit to and fro continues as UK wage and employment data come out largely in line;
USD: The greenback holds onto gains to continue trading at 2018 highs.
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