US indices hold gains
US indices clawed back early losses to trade marginally positive in slow trading activity during the Asian morning session. US indices edged higher by between 0.02% and 0.07% led by the NAS100 index.
The latest news from the US-China trade talks has remained positive. It has been announced that US President Trump is scheduled to meet China’s Vice Premier Liu He at 1845GMT today (0245 Saturday Singapore time). Yesterday, Trump said the first day of talks had gone “very well” while Liu He had said that China was willing to reach agreement on matters that both sides care about and to prevent an escalation in friction between the two sides. So far so good.
Pound clings on to extreme gains
Yesterday’s news that discussions between Irish PM Varadkar and British PM Johnson had produced a possible pathway to an agreement on the Irish backstop sent the pound soaring, jumping the most in seven months to hit the highest in more than two weeks versus the US dollar. The FX pair has been stable this morning, trading in a tight range to stand at 1.2437 currently.
The pair closed above the 100-day moving average at 1.2414 for the first time since September 24 with the next technical resistance points possibly at the September high of 1.2583 and the 200-day moving average at 1.2713. Of course, if these news headlines fail to produce anything of substance, then these resistance points will become irrelevant and we’ll head back down again.
GBP/USD Daily Chart
Fed speakers mixed
In speeches overnight, FOMC members gave mixed outlooks. Fed’s Kashkari (dove, non-voter) said another rate cut would be warranted, and he would support another 25bps rate cut, if data continues its trend. Meanwhile Mester (hawk, non-voter) expects the US economy will avoid a more serious downturn. He reiterated that he was against the September cut, but was content to keep the shallow policy path at the moment in hopes of firmer inflation down the road.
The ECB quandary
Minutes of the last ECB rate meeting showed that a clear majority of members supported some kind of easing, either a resumption of QE or further rate cuts. Some policy makers argued for a 20bps rate cut at the meeting instead of QE, while others wanted a resumption of QE.
Christine Lagarde is due to take over the reins of the ECB on November 1 but the next ECB rate meeting is scheduled for October 24, so it begs the question whether Draghi will go out in a blaze of glory with the next easing phase, or if he, or the European economy, can wait for the new guard to be in place. Either way, it looks as if Lagarde will inherit a slightly fragmented committee.
Central bank speakers close off the week
It’s a relatively mundane finish to what has been a busy week. The final reading for Germany’s CPI in September is not expected to bring any changes to the first estimate. We also have speeches form ECB’s Draghi and De Guindos to look forward to in the European session, while the North American session sees Canada’s employment report for September and speeches from Fed’s Rosengren and Kaplan. Data is confined to October’s Michigan consumer sentiment, which is expected to slide to 92.0 from 93.2.
