- Rates: All eyes remain directed on Westminster
Core bond trading was lackluster last Friday ahead of the extraordinary parliamentary session in the UK. As discussions continue, we expect more of the same at the start of the new trading week. The eco/event calendar is backloaded with EMU PMI’s, the ECB meeting and a speech by US VP Pence on China all scheduled on Thursday. - Currencies: Letwin wins, sterling loses (mildly)
Saturday’s crucial Brexit vote paralyzed markets on Friday. PM Johnson’s Brexit deal eventually did not even make it to a vote as the Letwin amendment got approved, requiring the government to get key Brexit legislation passed first. Brexit will dominate today’s trading given the lack of important data. Johnson will try to secure a vote on his deal again
The Sunrise Headlines
- WS ended the week on a down note (up to -0.95%). Asian markets are trading mixed as investors digest the latest trade/Brexit developments and are waiting for a slew of earnings reports. Singapore outperforms (0.93%).
- UK’s PM Boris Johnson is set to make a fresh bid today to win parliamentary backing for his Brexit deal amid growing confidence that he now has the support of 320 MPs needed to secure victory.
- Chinese VP Liu He boosted optimism as he said on Friday that the US and China are working to address each other’s concerns and that the nations “have made substantial progress” on the foundation for a phase 1 deal.
- On Friday, the Fed’s Clarida left the door open to a further rate cut and remarked that the US economy is in good shape but that geopolitical tensions remain unresolved and are spreading through the domestic economy.
- At the IMF and World Bank’s annual meetings, finance ministers and central bankers from around the globe gave momentum to the idea of fiscal policy to rekindle a slipping world economy.
- Japan’s exports contracted for a tenth straight month in September (-5.7%) (consensus at -3.7%) amid a bitter Sino-US trade war and slowing Chinese growth. The weak data could push the BoJ to ease as soon as next week.
- Today’s economic calendar is little inspiring. Sentiment will be driven by Brexit developments and key events later this week (central banks’ rate decision, Q3 earnings reports, trade developments).
Currencies: Letwin Wins, Sterling Loses (Mildly)
Letwin wins, sterling loses (mildly)
After a mixed bag of Chinese (GDP, retail and industrial) figures, Friday’s news and data flow was very limited and of secondary importance only. Markets engaged in technical trading under (very) low volumes ahead of a key Brexit vote in UK Parlimanet (see below). EUR/USD extended recents gains despite a cautious risk environment as US/EMU spreads narrowed. The currency pair closed at 1.1167, up from 1.1125. USD/JPY drifted south and finished the week at 108.45 vs. 108.66 at opening.
Asian stocks brush aside any Brexit disappointment and cling on to Chinese VP Liu He’s upbeat comments on trade talks with the US. Markets show modest gains. EUR/USD suffers some small losses following this weekend’s Brexit developments, trading in the 1.116 area. USD/JPY is changing hands near Friday’s close. There’s no important economic data scheduled for release today. We foresee technical trading in the run up to Thursday’s ECB and PMI’s. Popping headlines related to trade and Brexit are bound to cause some (intraday) volatility but are unlikely to cause any directional moves in EUR/USD or USD/JPY.
EUR/USD has settled above 1.10. Follow-through gains are rather modest though. Brexit uncertainty hasn’t been removed (yet?). At the same time the dollar might lose some further momentum ahead of the Oct 30 Fed meeting after vice chair’s Clarida final go for a third rate cut on Friday. We expect more EUR/USD gains, if any, to stay limited.
Sterling got caught in technical rangetrading last Friday as it awaited Parliament’s meaningful vote on Saturday. It didn’t come to a vote however. Lawmakers approved the Letwin amendment instead. It requires the Brexit legislation to be incorporated in British law first. Johnson was also required to ask for another extension. The EU has yet to decide. PM Johnson will give his deal another try today but it is unsure whether Commons Speaker Bercow will allow him. If blocked by the Speaker, the PM plans to push through the legislation in less than two weeks. The pound holds up pretty well currently. Still, it’s hard to see sterling’s recent rally continue. PM Johnson might have the numbers for his deal, but time is against him. We expect a nervous sterling with limited short term upside. EUR/GBP 0.867 is the first area of resistance.
EUR/GBP: ongoing Brexit uncertainty might push sterling back towards 0.867 resistance area.
