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November

Sterling holds gains as a Brexit deal ‘seems to be’ emerging

Published: Monday 05 November 2018

  • US news holds sway, mid-term elections, Federal Reserve and Iran sanctions dominate
  • Chinese trade data has power to impact AUD and NZD
​​By David Johnson

Data from Service Sector Purchasing Managers Indices due

Recent improvements in the tone of the Brexit rhetoric (or Brhretoric as I am starting to think of it) has boosted the Pound, as did the upbeat budget speech last week. So we start the week with the Pound around EUR1.14 and USD1.30. Today’s data is confined to service sector purchasing managers indices and that has already thrown a curve ball in the poor showing by China. We will get UK and US versions of the same data later. The UK one is expected to be a tad better than previously and the US the opposite.
 
However, few will be bothered by that. Further EU v UK propaganda will permeate the markets as it oozes out of all involved. It’s mostly negotiating tosh but Sterling traders love anything that hints as a resolution to the deal. The intractable matter of the Irish border remains and no one has a solution to that right now. This week also brings an expected rise in UK economic growth and a mixed bag in the industrial and manufacturing output data. Sterling is set to have a bumpy ride this week but, barring anything thorny, should improve as the week goes on.

USA deciding to reinstate sanctions against Iran
 
And, whilst the Brexit news is very important to the UK and the EU, the world is more absorbed in the American decision to reinstate sanctions against Iran. That in itself will inevitably impact the price of oil and affect those companies and countries that began working with Iranians after the sanctions were lifted during the Obama Presidency. What complicates the issue is that the EU would see any imposition of sanctions by EU companies as illegal. Caught between Iran and a hard place, I suspect companies will see the EU’s position as less problematic than trying to move money in and out of Iran because US banks will not be able to underwrite USD payments (and oil is traded in USD). So the impasse we see right now will have to be resolved by the EU. The US president isn’t for shifting although his next tweet might alter that completely. It is hard to know.
 
In fact the week is dominated by US news rather than data. The mid-term elections happen tomorrow and Trump is being challenged by Obama over his racist assertions. Speaking about Stacey Abrams, who, in Georgia, is seeking to be the first female black Governor of any state in the US, Trump said, “Stacey Abrams wants to turn your wonderful state into a giant sanctuary city for criminal aliens, putting innocent Georgia families at the mercy of hardened criminals and predators.” He was referring to the convoy of people heading for the US’s southern border to seek asylum. It will be very interesting to see how Americans’ vote in what is being seen as a popularity poll for this maverick president.  We will also see the US interest rate decision and a smattering of other data this week.

AUD and NZD markets wary of Chinese data due later in the week
 
The Australasian markets will be wary of Chinese trade data, due on Thursday. That is forecast to show a sizable drop in exports, which in turn, may reduce demand for Aussie and Kiwi products in China. Not good for their economy but perhaps an opportunity for those who need to buy AUD and NZD. And staying in the Antipodes, there is also an interest rate decision from the Reserve Bank of Australia tomorrow but no change is forecast.
 
And it is Guy Fawkes night tonight but it seems ‘Remember, Remember the 5th of November’ has morphed  into ‘remember, remember any day between the 30th October and the 5th of November and maybe later for your firework display.’ They seem to have gone on for weeks. For the love of people with pets, could we please co-ordinate. Then again, Christmas adverts are on TV two months early and my local stores have started getting their Christmas trees out. I am guessing someone will be selling Easter eggs in December and Valentine cards all year round. Perhaps calendars are just so last century.

Interviewee

Interviewer: "So what would you consider to be your greatest weakness?"
Candidate: "Honesty."
Interviewer: "I don't think honesty is a weakness."
Candidate: "Maybe, but I don’t care what you think."

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Services Purchasing Managers' Index 53.9 53.4
USD 14:45 US: Final Services Purchasing Managers' Index 54.7 54.7
USD 15:00 US: Non-Manufacturing Purchasing Managers' Index 61.6 59.3

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