Tensions remained at peak levels in the House of Commons and the government was defeated yet again in their attempt to recess for a Tory party conference. The lack of compromise continued to hamper Sterling sentiment. Despite claims from Downing St that the Withdrawal Agreement would be re-opened and EU Chief Negotiator Barnier reiterating that the EU was ready to work on new proposals, the markets remain sceptical. Also of concern was the speculation that the government would circumvent legislation for a Brexit extension if no deal appears before Oct 31st.
Sterling hovered near 1.1300 on the Euro but dipped to 2-week lows near 1.2300 against the Dollar before recovering slightly. GfK consumer confidence index improved slightly but political factors will continue to dominate. Sterling opens near 1.2330 on the Dollar, and 1.1290 on the Euro and The Bank of England’s Michael Saunders speaks this morning.
The final reading of the US second-quarter GDP was unchanged at 2.0% and in line with market expectations while price indicators were slightly stronger than expected. Jobless claims increased slightly to 213,000 in the latest week from 210,000. The August goods trade deficit widened slightly to $72.8bn from $72.5bn with exports and imports increasing slightly.
Minneapolis Federal Reserve President Kashkari stated that he pushed for a 0.50% rate cut at the September meeting due to signs that US businesses are slowing hiring plans. Richmond Fed Barkin stated that recent rate cuts do not mean that the Federal Reserve is in a prolonged easing period, although trade uncertainty and weaker growth abroad were posing headwinds. Markets overall were less convinced that there would be further rate cuts this year which helped underpin the dollar.
The US currency overall maintained a firm tone, supported in part by further tightness in money markets and pushed to 3- week highs on a trade-weighted basis as investors were unable to find attractive alternatives.
The Euro-zone’s annual M3 Money Supply growth strengthened yesterday to 5.7% for August from 5.2% previously and the strongest reading since March 2009 which could now dampen pressure for the ECB to sustain very aggressive monetary expansion.
The Euro remained under pressure with the single currency dipping to near 1.0920 against the US dollar. German Chancellor Merkel stated that the job of politics is to ensure that the ECB is not over-strained on monetary policy. The comments increased speculation over a potential fiscal boost which briefly boosted the Euro
As of writing, the Euro is bouncing around the 1.0917 against the Dollar.
Data to watch
13.30 USD - Core Durable Goods Orders
13.30 USD - Personal Spending
13.30 USD - Core PCE Price Index
13.30 USD - FOMC Member Quarles Speaks
Posted in Daily Market News on Sep 27 2019