Brokering a Brexit backstop

Theresa May heads to Brussels ahead of the EU summit with UK inflation and Fed minutes also in focus.

Previous Day's Market Highlights

Sterling was the major mover on Tuesday after better than forecast average earnings data (2.7% v 2.4% forecast) gave fresh impetus to the pound. Sterling gained 0.5% against both the euro and dollar over the course of the day however the move was capped as a cloud of uncertainty remains due to doubts over what can be achieved at the EU summit this evening.
 
Equity markets rallied once again, with last week’s rout seemingly coming to an end. Bourses across Europe gained over 1% with the FTSE lagging slightly with a 0.4% daily gain, held back by a strengthening sterling. US markets rallied sharply, gaining more than 2% after strong earnings from major companies including Goldman Sachs. The equity moves saw the yen dip by 0.2% as sentiment turned toward riskier assets. 
 
Other notable data releases were of a lower tier and were largely as forecast causing little market impact. The eurozone trade balance showed an unchanged trade surplus while US JOLTS job openings showed 7.14mln job openings being reported in August. The dollar was little changed with focus being on Wall Street earnings season.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1397 1.1463 1.1112 3.06%
GBP/USD 1.3183 1.3298 1.2922 2.83%
EUR/USD 1.1566 1.1815 1.1436 3.21%
GBP/AUD 1.8465 1.8735 1.7937 4.26%
GBP/NZD 2.0000 2.0481 1.9554 4.53%
GBP/CAD 1.7081 1.7286 1.6598 3.98%

Today's Market Highlights

Another busy day will be in store today for sterling today with the release of Inflation figures for September. The headline CPI figure is expected to increase by 2.8% year-over-year, continuing to be well above the BoE’s 2% target. Focus will also be on the Core CPI figure, forecast at 1.8% y/y, which excludes the volatile factors of food and energy prices. The other highlight for sterling will be the EU summit where further negotiations may take place over a Brexit deal while PM may is due to address a dinner of EU27 leaders. Reports have emerged that the EU is open to extending the transition deal for up to a year and has asked the UK to propose fresh ideas to try and kickstart negotiations towards a deal by next month.
 
This evening’s release of the latest Fed meeting minutes will be key for the US dollar and provide important clues towards the extent to which the Fed plan to tighten monetary policy in the coming years. With rates being hiked at the last meeting, market participants will be looking for Fed comments which reinforce the current market view that rates will be hiked a further 3 times in 2019. Any hawkish comments would likely see the dollar appreciate, however investor concerns over a global trade war may keep a cap on any rally.
 
Other data on the slate for today includes final Eurozone inflation figures for September, forecast 2.1% year-on-year, which are unlikely to impact the euro unless the figure differs vastly from the flash estimate released at the end of last month. The Canadian dollar and oil prices will likely be influenced by the weekly crude oil inventories release, forecast to show an increase of 0.6mln barrels. Brent prices increased by 0.4% yesterday a private inventory survey showed a decline in US crude stocks. 
 
Finally, central bank speakers today include Fed voter Brainard, MPC member Broadbent and the ECB’s Weidmann.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP CPI (y/y) 2.8% 2.7%
10:00am EUR Final CPI (y/y) 2.1% 2.1%
10:00am EUR Final Core CPI (y/y) 1.0% 0.9%
1:30pm USD Building Permits 1.28m 1.23m
1:30pm USD Housing Starts 1.24m 1.28m
7:00pm USD FOMC Meeting Minutes

Caxton