8th November 2018 Market Update
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🇺🇸 USD – Now that the US Midterms have been completed, and the likely outcomes discussed – the focus now shifts to today’s FOMC meeting for which rates are widely expected to remain unchanged. As part of this, previous forward guidance from the Fed has indicated that we are likely to see a rate increase in December and a further two in 2019, as long as the economy continues to grow. As a result, the likely Dollar impact today is limited, or in the very least it would take some very hawkish comments to help strengthen the Dollar, especially after the relatively less hawkish outcome of the US Midterms which have lowered the likelihood of more fiscal stimulus. Another interesting point to consider as a result of the elections is that now – Trump will have someone to blame if the economy takes a turn for the worst, which given the current business cycle is looking increasingly likely. As well as that, Trump can use the House as an excuse as to why he couldn’t get anything done, as well as a pitch for what needs to change in the next election.
🇬🇧 GBP – If you believe what the papers say, then a Brexit deal is getting closer and closer by the day, with current reports suggesting a deal may be completed by the end of November. To put this into numbers, the Pound has seen a 3% rally in the currency over the past week alone, despite no real confirmation of any progress on the troublesome Irish border deal. The latest story, if you believe it – is that yesterday Prime Minister Theresa May’s cabinet ministers were invited to read an ‘almost’ complete draft of the withdrawal agreement. This news has kept Sterling well supported, but a number of analysts believe that things are less optimistic than the current higher rates indicate, partly due to the fact time is running out on being able to make a deal and more significantly due to the fact that any deal will struggle to navigate its way through parliament!
🇪🇺 EUR – The most interesting quotes from yesterday came from former Italian PM Matteo Renzi who, as part of a Bloomberg interview – highlighted his concerns for the Italian Economy, citing that a 2.4% deficit (as per the current budget) is a ‘stupid decision.’ He did, however, seem confident that Italy would remain in the Eurozone, but that current Deputy PM Matteo Salvini was a bad driver of a good car. In terms of the data, Eurozone retail sales raised more than expected in September, while August data was also revised upwards. These new figures signal consistent consumer demand, despite the slowing economic growth which was evidenced this morning’s German trade balance data for which Europe’s largest economy’s surplus shrunk to €17.6bn, with exports and imports both falling on an annual basis. This is another indication of a Eurozone that overall, is struggling to grow despite the ECB’s continued stimulus environment. As such, the Euro’s future – despite having a strong 2018, is looking markedly weaker going into 2019.
USD: As the interest in the Midterms come to an end, focus now turns towards the next FOMC meeting;
GBP: Proceed with caution; Sterling remains well bid off the back of rumours and headlines in the media;
EUR: A lack of growth and concerns over Italy remain the key drivers behind the Euro’s weakness.
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