Saying Farewell to Super Mario

Sterling flatlines as Brexit stalemate continues; as markets prepare to wave goodbye to outgoing ECB President Mario Draghi

Previous Day's Market Highlights

Sterling was caught up in a case of Brexit stalemate on Wednesday; with EU leaders waiting to hear of the UK government's plans before determining the length of any Article 50 extension, and the government waiting to discover the length of any extension before revealing their plans. As such, the pound meandered for much of the day, before settling with a gain of around 0.25% against both the dollar and euro. 

Nevertheless, there was plenty of news flow, with the most likely scenario appearing to be an Article 50 extension until 31st January 2020, which the UK will use to hold a general election. Such an extension is reportedly facing 'soft' opposition from some EU27 nations, notably France, though is likely to be approved by ambassadors on Friday. The Prime Minister revealed the general election plan in a combative PMQs, as well as in a call with EU Council President Tusk - where the PM once again repeated his opposition to any Brexit delay. Calling an election, under the Fixed-term Parliaments Act, requires a two-thirds majority in Parliament, meaning that the plan hinges on the votes of a Labour party seemingly reluctant to head to the polls. Until an extension is granted, and plans become clearer, it is difficult to envisage significant sterling volatility.

Elsewhere, most major pairings trod water amid a lack of major economic releases and an absence of impactful headlines. The euro trod water, with investors trading in a tentative manner ahead of today's PMI surveys and ECB meeting (more below). The dollar also spent the majority of the day moving sideways, eventually chalking up a gain of around 0.1% against a basket of peers. Meanwhile, with little developments in US-China trade relations and little to alter risk appetite, both antipodeans and the Japanese yen were largely rangebound.

Away from FX, the Brexit stalemate weighed on European equity markets, resulting in the pan-continental Stoxx 600 closing unchanged. In contrast, US markets gained ground, despite a string of weaker than expected corporate results. The benchmark S&P 500 ended the day with a gain of 0.3%, closing in on a fresh record high. Finally, oil prices staged a significant rally after data showed a surprise draw on inventories. Global benchmark Brent settled 2.3% higher, while US WTI crude gained just under 3%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1600 1.1661 1.1086 4.93%
GBP/USD 1.2910 1.3012 1.2195 6.28%
EUR/USD 1.1130 1.1179 1.0879 2.68%
GBP/AUD 1.8875 1.9094 1.8076 5.33%
GBP/NZD 2.0160 2.0559 1.9311 6.07%
GBP/CAD 1.6895 1.7095 1.6191 5.29%

Today's Market Highlights

The day has finally arrived; after 8 years at the helm of the European Central Bank, President Mario Draghi will today chair his final monetary policy meeting before the end of his term on 31st October. With no policy changes expected today, now is a good opportunity to look back at the highlights of Super Mario's tenure at the ECB; a tenure which will be remembered as one where Draghi saved the euro and unveiled a host of new monetary policy tools, but fell short on the ECB's inflation goal, while transforming the ECB into the institution that it is today.
Draghi's trailblazing tenure began at his very first policy meeting, just two days after assuming office, where the Italian announced a surprise interest rate cut - reversing Trichet's misstep - as the start of efforts to tackle the sovereign debt crisis sweeping the eurozone at the time. Draghi's most memorable, and most important, moment at the helm of the ECB came just 9 months later, when three words made history - saving the eurozone economy and holding the euro together. At a speech in London, when the sovereign debt crisis was pushing the euro area to the verge of collapse, Draghi changed the course of history, uttering the momentous phrase that the ECB would do "whatever it takes" to preserve the euro. In pledging to preserve the euro, Draghi calmed investors and significantly lowered bond yields across the currency bloc; bringing the union back from the edge of crisis.
A couple of years later, Draghi broke fresh ground again, taking the ECB's deposit rate into negative territory for the first time as the eurozone continued to battle against downside economic risks. Shortly after, with the economy still fragile, and deflation a lingering risk, Draghi announced that the ECB would begin a quantitative easing programme; purchasing eurozone government debt in order to try and further stimulate the economy.
Green shoots then began to emerge, with Draghi announcing the run-off, and eventual conclusion of the ECB's bond-buying programme in December 2018. However, since then, the economy has not evolved and improved as expected, with increasingly pervasive downside risks resulting in the announcement of a sweeping stimulus package last month. Draghi's parting gift involved taking rates deeper into negative territory, tiering the deposit rate, and restarting asset purchases. Today's meeting will not see any policy changes, with the post-meeting press conference likely to mainly cover the highlights of Draghi's term rather than the policy outlook; allowing the baton to be smoothly handed to incoming President Lagarde from 1st November.
Elsewhere, ahead of Draghi's farewell, market participants will get their latest glimpse into the health of the eurozone economy through October's flash PMI surveys. Economic momentum is set to remain fragile, particularly in the manufacturing sector, where activity is set to have contracted for the 9th straight month. Meanwhile, both the services and composite measures are expected to remain just above the crucial 50.0 barrier between expansion and contraction, with forecasts at 51.9 and 50.3 respectively.
Meanwhile, focus for the pound will remain on political developments, specifically the EU's response to the UK's request to extend Article 50, along with potential further movement within government towards an early general election. Parliament is also set to vote on the Queen's Speech - the government's legislative agenda. Should the government fail to win the vote, opposition parties would be under further pressure to put forward a motion of no confidence. On the data front, investors will examine a host of releases from the US, including weekly jobless claims and September's durable goods orders. Last week's jobless claims are expected broadly in line with the 4-week average of 215k; while durable goods orders, a useful leading indicator of production, are expected to have slid by 0.8% last month, the first decline since May.

Today's Economic Calendar

Time Currency Release Consensus Previous
9.00am EUR Manufacturing PMI (Flash - Oct) 46.0 45.7
9.00am EUR Services PMI (Flash - Oct) 51.9 51.6
9.00am EUR Composite PMI (Flash - Oct) 50.3 50.1
12.45pm EUR ECB Interest Rate Decision (Refi Rate) 0.0% 0.0%
12.45pm EUR ECB Interest Rate Decision (Depo Rate) -0.5% -0.5%
13.30pm EUR ECB Monetary Policy Statement & Press Conference
13.30pm USD Initial Jobless Claims (Oct 18) 215k 214k
13.30pm USD Durable Goods Orders (Sep) -0.8% 0.2%