Risk-On Mood Continues

Risk appetite remains healthy as US-China deal hopes grow; sterling gains on services PMIs as election campaign begins; Eurozone releases eyed today

Previous Day's Market Highlights

Markets continued to strike a risk-on tone on Tuesday, as hopes of a phase one US-China trade deal being agreed remained elevated. Such hopes were buoyed by remarks from Chinese President Xi that called for international tensions to be resolved through discussion, and urges that global trade barriers are removed. These comments are much more conciliatory than the recent rhetoric from China, igniting hopes that Sino-US relations are improving and that a trade deal can be signed sooner rather than later. As a result, risk assets remained well-supported, with both the Aussie and Kiwi dollars continuing to gain ground. In contrast, the safe-haven Japanese yen and Swiss franc both shed around 0.5%, as market participants continued to rotate away from safe-haven assets.

Meanwhile, on the data front, October's ISM non-manufacturing PMI survey printed better than expected, seeing the dollar remain well-bid. The survey read 54.7, modestly below the 6-month average of 54.9, and pointing to a healthy pace of expansion which should see the FOMC remain on pause next month, as policymakers continue to assess the impact of recent 'insurance' cuts on the US economy. The greenback gained around 0.5% after the release, with support also stemming from the optimistic trade sentiment, mentioned above, as concerns over headwinds facing the economy receded.

Elsewhere, sterling ticked higher after better than expected services PMI figures, though gains were capped by ongoing political concerns. October's services index, which represents around 80% of the UK's economic output, pointed to stagnation over the last month - though this was more optimistic than the back-to-back monthly contractions that had been feared. The sector is, however, not yet out of the woods, with a continued decline in new orders potentially pointing to trouble ahead. In the political world, little in the way of notable developments occurred, as Parliament dissolved ahead of the formal start of election campaigning. The pound ended the day 0.5% higher against the euro, and 0.1% higher against the dollar.

Overnight, third quarter employment figures from New Zealand surprised to the downside, pointing to a significant degree of slack remaining in the jobs market. Data showed unemployment ticking up to 4.2%, 0.3% higher than in Q2, while net employment increased by a paltry 0.2% QoQ. As a result of increasing unemployment, and plentiful supply of labour, wage growth remains subdued, increasing at just 2.3% YoY. With this in mind, the RBNZ are likely to maintain their dovish policy stance, possibly delivering a further 25bps rate cut next week. The Kiwi dollar shed around 0.15% in reaction to the report.

In other markets, equities remained well-supported on hopes of a US-China trade deal, though struggled to make significant headway. In Europe, the pan-continental Stoxx 600 closed 0.2% higher; while the US benchmark S&P 500 closed unchanged, hovering just shy of a record high. Finally, oil prices firmed on the upbeat trade tone, with global benchmark Brent and US WTI crude both adding around 1.25%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1630 1.1661 1.1427 2.01%
GBP/USD 1.2880 1.3012 1.2515 3.82%
EUR/USD 1.1075 1.1179 1.0991 1.68%
GBP/AUD 1.8690 1.9094 1.8076 5.33%
GBP/NZD 2.0235 2.0559 1.9311 6.07%
GBP/CAD 1.6955 1.7095 1.6253 4.93%

Today's Market Highlights

Eurozone releases come into focus today, as market participants continue with attempts to gauge the extent of the economic slowdown across the bloc. Investors are likely to focus on this morning's services and composite PMI figures, with both set to provide further evidence of the ongoing sluggish economic momentum. October's services PMI is expected at 51.8, unchanged from the flash estimate, while the composite gauge - measuring output across all economic sectors - is expected at 50.2, just above the crucial 50 dividing line between expansion and contraction. Also in focus this morning will be September's retail sales figures, expected to show consumer spending remaining healthy with sales increasing by 2.5% YoY. As is the case in many other economies, consumer spending is one of the few growth areas, underpinning the current economic expansion.

Elsewhere, today's calendar is sparsely populated, meaning that geopolitical issues should remain the main centre of attention. With this in mind, developments in US-China trade relations will remain the primary factor driving risk appetite; while the ongoing general election campaign will be the main driving force behind the pound. Parliament has now been dissolved, meaning that formal campaigning will kick off today, with parties set to release their manifestos in the coming days.

Turning to monetary policy, today's speaking calendar is busy, with a number of remarks scheduled. From the ECB, markets will hear from typically dovish Vice President de Guindos - likely to repeat a push for fiscal stimulus from eurozone governments - in addition to noting remarks from Governing Council member Mersch. Meanwhile, in the US, dovish FOMC voters Evans and Williams are due to speak, in addition to hawkish non-voter Harker. Comments on recent economic releases, as well as the policy outlook, will be of particular interest, with the FOMC seemingly on pause for the foreseeable future.

Today's Economic Calendar

Time Currency Release Consensus Previous
9.00am EUR Final Services PMI (Oct) 51.8 51.8
9.00am EUR Composite PMI (Oct) 50.2 50.2
10.00am EUR Retail Sales (YoY - Sep) 2.5% 2.1%
15.00pm CAD Ivey PMI (Oct) 54.4 48.7