Here are the latest developments in global markets:
- FOREX: The dollar was overperforming early in the European session on Monday as political uncertainties in Europe and strong optimism on the US economy, persuaded traders to invest more in the greenback despite Trump’s Republicans losing control of the House of Representatives last week. The dollar index gained 0.60% to rise as high as 97.57, a level never seen since June 2017. Dollar/yen spiked to a five-week high of 114.20, but it soon returned to 113.91, near its opening price. The British pound was under severe pressure, diving by more than 1.0% to 1.2839 against the US dollar as Brexit concerns resurfaced. The UK Prime Minister keeps feeling pressure from her cabinet and it seems that she might not be able to secure an agreement this month as ministers continue to oppose her Brexit plan, a few months before the exit date. On Saturday, UK’s transport minister and brother of Boris Johnson, Jo Johnson, resigned from the government over his Brexit divisions. Pound/yen slipped by 0.87%, whereas euro/pound held on the upside, adding 0.37% to its performance. Meanwhile in the eurozone, the sentiment was not better as the clock was ticking down for Italy which has until tomorrow to revise its draft budget plan rejected by the EU. Rome however, has not shown any signs of compromise yet to lower the 2.4% deficit target for 2019. Besides Italy, trade is another topic of worry in the eurozone as US tariffs on EU cars will eventually take effect next year if the two sides fail to find common ground. On the monetary front, ECB member Luis de Guindos said that growth in the EU is turning to normal levels after an unusual progress in 2017, pointing to weakening external demand for the slowdown. Euro/dollar posted a fresh 1 ½ -year low at 1.1237 before inching up to 1.1260 (-0.67%). The antipodean currencies were on the back foot for the third straight day after a substantial rally last week. Aussie/dollar and kiwi/dollar pulled back by 0.32% and 0.18% correspondingly. Dollar/loonie was flat at 1.3210, slightly below Friday’s almost four-month high of 1.3231.
- STOCKS: Despite starting the day higher, European equities returned to negative territory at 1150 GMT as fears over Brexit, the Italian budget and the US-Sino trade war clouded sentiment in the markets. The pan-European STOXX 600 was down by 0.36% at 1130 GMT and the blue-chip Euro STOXX 50 was lower by 0.32%, with technology losing the most. The German DAX 30 declined by 0.74%, the French CAC 40 inched down by 0.21% and the Italian FTSE MIB pulled back by 0.53%. The British FTSE 100 retreated by 0.15%. In Asia, stocks closed mostly positive, while in the US futures tracking the S&P 500, Dow Jones and Nasdaq 100 were steady, pointing to a flat open.
- COMMODITIES: Oil prices opened with a gap higher on Monday after closing in the red for the fifth consecutive week on Friday. The market faced significant tailwinds today following news that OPEC and its allies have discussed a potential supply reduction to curb the fall in oil prices during the weekend. In addition, Saudi Arabia announced that it will proceed with a 500,000 bpd cut in December versus November. WTI crude was up by 0.50% on the day at $60.49/barrel and the London-based Brent was trading higher by 1.14% at $70.98/barrel. In precious metals, gold extended last week’s declines to a one-month low of $1203.36 (-0.21%), resuming its neutral profile from August 17.
Day Ahead: Calendar lacks important releases; focus turns to Brexit and Italian politics
With the economic calendar lacking releases, investors will turn their attention on Brexit and the Italian-EU budget standoff.
On the political front, the deadline for Italy to submit its revised budget to the EU Commission is on Tuesday. The Commission said that Italy’s deficit could end up as high as 2.9% in 2019, instead of 2.4% as Rome is insisting. On Friday, Italy’s finance minister Giovanni Tria mentioned that he has no intention of altering Italy’s 2019 spending plans, while comments by the Italian Deputy PM, Luigi Di Maio today signalled that an adjustment of the proposed plans by tomorrow is unlikely. Consequently, it would be interesting to see whether the EU will reject again the revised plan and potentially open the process for sanctions against Rome. However, no country has been sanctioned for breaking EU spending limits ever before.
The sharp sell-off in sterling today came obviously once again due to the lack of Brexit progress which played down hopes that a deal could be reached later this month as some government officials supported previously. The ongoing disagreement between the UK Prime Minister Theresa May and her Cabinet probably led May to call off a special cabinet meeting on Brexit today, even if government sources argued that a cabinet meeting was never on today’s schedule. On the positive side, James Slack, a spokesman to the UK PM expressed today hopes that ministers will continue to support May, adding that negotiations are ongoing although differences remain on the Irish border front.
In terms of public appearances, at 1930 GMT, Federal Reserve Bank of San Francisco President Mary Daly will be speaking on the economic outlook.
Noteworthy, that US bond markets will be closed on Monday due to the Veterans’ Day holiday.
