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Sterling up on strong data and potential Irish border deal

Published: Tuesday 02 October 2018

  • USD and CAD benefit from United States-Mexico-Canada Agreement (USMCA) deal
  • Reserve Bank of Australia (RBA) on hold for 24th meeting in a row
​​By David Johnson

Monday’s round of manufacturing sector sentiment indices showed a slight global downturn but one notable highlight; the UK index was miles better than forecast at 53.8, against a market forecast of a decline to 52.6. That gave Sterling a boost when the Eurozone index was a tad weaker and the US one was on par with last month.  Sterling was also boosted a little by rumours that there was a potential concession on the Irish border which may facilitate a Brexit deal. As expected, EU negotiators were quick to scoff at the idea because you don’t concede points until the last minute when you are negotiating. We had early data in the form of improved UK house prices as measured by the Nationwide and we will get the UK construction sector Purchasing Manager’s Index (PMI) today. That is also forecast to be a tad down on the previous month, so there is room for more volatility if the forecasters are as inaccurate on this as the manufacturing one. And Brexit comments are due from the EU and the Tory conference, so anything could happen.
Yesterday’s other big news was the US President announcing a trade deal with Mexico and Canada. North American Free Trade Agreement (NAFTA) has been replaced by the snappily titles United States-Mexico-Canada Agreement (USMCA). It was a typically interminable Trump speech but the finalisation of a deal was clearly seen as positive for the US economy and that of Canada and Mexico. The USD pushed the Pound and Euro lower; as did the Canadian Dollar. In fact GBPUSD is pressing below $1.30 and the GBPCAD rate has dropped from 1.72 to 1.66 in the last week at the interbank level. News from the US is limited to speeches from Federal Reserve members today but there seems to be some momentum behind this USD strength, so don’t be surprised if we see more of it.
Overnight we heard that the Reserve Bank of Australia left their base rate on hold at 1.5% for their 24th meeting in a row. They are balancing strong economic data against falling house prices in some areas and a weak currency which helps exports. Juggling so many balls is likely to see them sit still for a while longer.
Italy is proving to be a hooligan as far as the EU is concerned. One MP stated yesterday that Italy could solve all its problems if it had its own currency, they are proposing a budget which would ignore Eurozone targets for budget deficits and the Italian Deputy Prime Minister has accused the EU of market ‘terrorism’ over their negative comments about Italy’s proposed budget. Italy’s Finance Minister has also weighed in, accusing many EU states of ignoring EU budget rules. I could write a whole report on these shenanigans and the budget story, in particular, has scope to upset the Euro.
And sometimes the intention is good but the execution lacks planning. Texan Joshua Mason was so keen to find a romantic, isolated spot to propose to his girlfriend, Katie Davis that he ended up taking her on an 8 mile hike, 3,000 feet up onto Jasper Peak in Colorado. He proposed and Katie said, ‘Yes’ but then the couple realised it was getting dark, they were a bit lost and they didn’t have any cold weather gear. Long story short; they finally found some campers but were so dehydrated and were suffering from altitude sickness that they had to be rescued from the mountain and taken to a lower altitude before they started to recover. We wish them both a happy life together with fewer mountain rescues in the future.
A few short jokes
What is the difference between a golfer and a climber.
One goes whack ‘damn’ and the other goes ‘damn’ whack.
‘Mummy, when I grow up I want to be a surfer.’
‘Make your mind up baby, you can’t do both.’
My wife said I was too immature, so I banned her from my cushion fort.
“If God had written the Bible, the first line should have been ‘It’s round.'” – Eddie Izzard

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR All Day The Economic and Financial Affairs Council Meetings    
GBP 09:30 UK: Construction Purchasing Managers' Index 52.9 52.8
EUR 10:00 EU: Producer Price Index 0.4% 0.2%

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