Markets Calm as Trade Talks Loom

Looming trade talks dampened volatility on Monday, resulting in muted trading ranges across G10 FX, as Sterling's direction continues to be dictated by Brexit developments.

Previous Day's Market Highlights

FX markets began what should be a busy week on a decidedly quiet note, with volatility muted across G10 FX on Monday. The looming issues on the horizon, namely Brexit and the latest round of US-China trade talks seemed to keep market participants on the sidelines, remembering the mantra that having no position is a position in itself.
Speaking of trade, a host of headlines filtered through during the day, though none of significant magnitude to impact the price action. The general theme of the trade-related news was to dampen expectations of a major breakthrough this week, as Chinese officials suggested that a "broad" pact was off the table, and White House Chief Economic Advisor Kudlow stated that he didn't want to predict the outcome of this week's discussions. If a deal is to be struck, either this week, or in the longer-term, it appears likely to be a 'mini-deal' - i.e a pared down version of the originally envisaged agreement. This would be enough for President Trump to push in his 2020 re-election campaign, but would be a very fragile state of affairs and in no way be a permanent solution. At this point, it is difficult to envisage relations deteriorating, but equally difficult to see a meaningful, sustained improvement. Over the course of the day, the dollar nudged around 0.15% higher against a basket of peers; though both the Aussie and Kiwi dollars softened, by 0.4% and 0.3% respectively, due to the lower expectations of a breakthrough.
Meanwhile, little in the way of major Brexit developments occurred on Monday, resulting in the pound striking a modestly softer tone amid minuscule trading ranges. Sterling ignored a Scottish Court's dismissal of a case that could have resulted in PM Johnson being ordered to extend Article 50, while also shrugging off comments from a government spokesman repeating that the UK would be departing the EU, deal or no deal, on 31st October. It is, however, worth noting rumours that debate in the EU is shifting towards the parameters of an extension, rather than the agreement of a deal by 31st October; providing further evidence that EU leaders remain rather unimpressed by the UK's latest proposals. Formally, however, UK-EU talks remain stalled, with no end to the impasse in sight.
Elsewhere, the euro settled unchanged, shrugging off another disappointing data point from Germany, where factory orders declined by 6.7% YoY in August; a leading indicator that bodes poorly for the production sector going forward. Similarly, the Canadian dollar and Swiss franc were both largely unchanged.

Away from FX, European equity markets gained ground amid thin trading volumes, with the pan-continental Stoxx 600 closing 0.7% higher. Across the pond, trade pessimism weighed on major indices, as the benchmark S&P 500 closed 0.45% lower. Finally, oil prices trod water as looming trade talks dampened volatility.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1200 1.1381 1.1142 2.10%
GBP/USD 1.2295 1.2583 1.2204 3.01%
EUR/USD 1.0975 1.1110 1.0879 2.08%
GBP/AUD 1.8215 1.8496 1.7937 3.02%
GBP/NZD 1.9460 2.0003 1.9113 4.45%
GBP/CAD 1.6345 1.6691 1.6191 3.00%

Today's Market Highlights

The data calendar remains largely devoid of major releases today, ensuring that focus should remain primarily on geopolitical developments. Investors will remain on alert for any trade- or Brexit-linked headlines; particularly the latter, with today being Parliament's final sitting day until the Queen's Speech on 14th October. Major showdowns are unlikely in the Commons today, however MPs against a no-deal Brexit are likely to use the short suspension to mull over additional ways of forcing the government to request an Article 50 extension.
On the data front, today's highlight comes from the US, in the shape of September's PPI figures. The release is set to show the change in factory gate prices remaining broadly unchanged from August's print, with headline PPI expected at 1.8% YoY, and the core PPI measure expected at 2.3% YoY. While the data tends to be a useful leading indicator for the more widely-watched CPI inflation measure, the immediate market impact tends to be muted. Today's only other notable releases come in the shape of Canadian building permits and housing starts, though neither will significantly impact the loonie. Today's UK and eurozone calendars are empty.
The central bank speaking calendar provides much more interest, with a host of remarks due. From the Fed, attention will centre on Chair Powell's address this evening, with market participants looking for hints on the policy outlook and Powell's assessment of the US economy. Remarks from dovish voter Evans, and non-voting über-dove Kashkari, may also be of interest. Here in the UK, sterling traders will be eyeing remarks from the BoE's Haldane and Tenreyro, especially after recent comments from hawkish MPC member Saunders raised the prospect of a rate cut even in the event of a Brexit deal. Further dovish comments from today's speeches will likely weigh on the pound. Finally, ECB Governing Council members Lane and de Cos will likely reiterate policymakers' push for fiscal stimulus from eurozone member states.

Today's Economic Calendar

Time Currency Release Consensus Previous
1.30pm USD Producer Price Index (YoY - Sep) 1.8% 1.8%
1.30pm USD Producer Price Index - ex Food & Energy (YoY - Sep) 2.3% 2.3%
1.30pm CAD Building Permits (MoM - Aug) -2.0% -3.0%
7.30pm USD Fed Chair Powell Speech