Score Draw in TV Debate; FOMC Minutes Eyed

Sterling holds steady as Johnson and Corbyn go head-to-head; trade concerns dampen risk appetite; FOMC minutes in focus today

Previous Day's Market Highlights

The first TV debate of the general election campaign - and first ever campaign head-to-head between the leaders of the two major parties - ended in a score draw on Tuesday.

Both leaders performed relatively solidly throughout the debate, though neither Johnson or Corbyn were able to land a knockout blow, instead preferring to stick to their own comfort zones; Brexit and the NHS respectively. Johnson seemingly won round 1, on Brexit, while Corbyn appeared much more comfortable in the second round on domestic issues. Despite this, the debate gave relatively little for market participants or those in the Westminster bubble to chew over, with comments very seldom veering away from remarks that we have heard before, and no fresh policies or ideas being hinted at. A snap YouGov poll, released after the debate, showed the public viewing the debate as a dead heat, with 51% saying that Johnson performed better, and 49% choosing Corbyn.

As such, the debate is unlikely to significantly alter voting intentions, a fact that will likely please the Conservatives more than Labour, who would likely have been hoping that the debate could kick-start their campaign. Labour now appear to need something significant, perhaps Thursday's manifesto launch, to reinvigorate their campaign and attempt to narrow the Tories' poll lead before time runs out.

For markets, the debate resulted in sterling paring back earlier losses. The pound had earlier declined by around 0.5% across the board, perhaps as a result of nervousness that Corbyn would pull a rabbit out of the hat, though reversed around half of those losses during the debate. Sterling ended the day 0.2% lower against both the dollar and euro, though traded well within familiar ranges.

More broadly, risk appetite remained subdued as doubts over a Sino-US trade deal persisted. Such doubts weren't helped by headlines from the Chinese state-run Global Times newspaper, which indicated that talks face "major obstacles" and that big gaps remain between negotiators - with the rollback of existing tariffs remaining key to breaking the present impasse. Speaking of rollbacks, US negotiators are said to be attempting to tie tariff relief to May's shelved trade deal, which is set to be used as a benchmark for how much tariffs should be rescinded. However, despite ongoing talk of removing tariffs, President Trump, in a typically statesmanlike and mature fashion, told reporters that if there is no trade deal, the US will 'just raise tariffs even higher'. Trump is evidently back to trying pressure tactics, though if they didn't work before, it is highly doubtful that they will be successful this time around. Maybe this is all part of 'The Art of the Deal'?

As a result of today's developments, and the continued concerns over US-China relations, havens remained well-bid. The Japanese yen added 0.2%, while the Swiss franc struck a firm tone despite comments from the SNB that the currency remains 'highly valued'. Peculiarly, antipodeans also gained ground, despite the risk-averse tone. The Aussie dollar ticked up by around 0.3%, while the Kiwi dollar added 0.4%, though both currencies look relatively rich at present levels in light of the deteriorating risk environment.

Elsewhere, both the dollar and euro traded unchanged on the day, with little in the way of impactful headlines or major economic releases to drive price action. Technically, the dollar index - which measures the dollar's performance against a basket of peers - is resting upon a key technical support level around 97.70, with a break below opening up a move to the October lows at 97.20. This will be an interesting chart to watch over the coming days, with a further decline in the dollar index set to see USD crosses (including EUR/USD and GBP/USD) push higher.

In other markets, equities struggled for direction as trade concerns lingered. In Europe, the pan-continental Stoxx 600 shed 0.2%, while the US benchmark S&P 500 shed 0.1%, pulling back from all-time highs. Finally, oil prices experienced their worst day since September, as concerns over both trade and an oversupply in the market exerted pressure. Global benchmark Brent settled 2.45% lower, while US WTI crude shed more than 3%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1665 1.1735 1.1550 1.58%
GBP/USD 1.2915 1.2986 1.2761 1.73%
EUR/USD 1.1070 1.1175 1.0989 1.66%
GBP/AUD 1.8940 1.9080 1.8546 2.80%
GBP/NZD 2.0115 2.0331 2.0002 1.62%
GBP/CAD 1.7150 1.7170 1.6724 2.60%

Today's Market Highlights

The Federal Reserve will be in focus today, with minutes from October's FOMC meeting the calendar highlight. At the meeting, the FOMC voted in favour of a 3rd consecutive 25bps interest rate reduction, though signalled that monetary policy would now be on hold for the foreseeable future. 

The minutes, which provide a clearer picture of what was discussed during the 2-day policy meeting, are likely to paint a largely similar picture - namely, emphasising that the current policy stance is 'appropriate' barring a 'material reassessment' of the economic outlook. It will, however, be interesting to see the degree of unanimity behind October's decision, with several of the more hawkish Committee members likely to have voiced opposition to the rate cut, in addition to Rosengren and George who voted against loosening policy. 

In terms of the economy's performance and future outlook, comments are also likely to be broadly in line with the policy statement. Policymakers are likely to have discussed how the labour market remains 'strong' and how the economy continues to sit in a 'good place' - comments that would echo a number of recent speeches from regional Fed Presidents. 

For markets, the minutes are likely to be a non-event, barring any major surprises. Investors have priced out the chances of any further policy easing this year, with a rate cut 12 months from now a roughly 50:50 chance.

Elsewhere today, data releases are lacking, with only October's Canadian CPI figures of note. Both headline and core inflation are expected at 1.9% YoY - the third straight month that both measures would print just shy of 2%. As such, the release is likely to give the BoC little cause for concern, though the policy outlook seems largely dependent on global developments than the domestic inflation backdrop.

Meanwhile, the direction of the pound will continue to be dominated by developments in the general election campaign. Any fresh opinion polling or new policy announcements will be of particular interest to markets, 

Finally, today's central bank speaking calendar is relatively light, with only ECB Chief Economist Philip Lane set to make remarks. Should Lane touch on policy, remarks will likely centre around the continued push for fiscal stimulus from eurozone governments.

Today's Economic Calendar

Time Currency Release Consensus Previous
13.30pm CAD CPI (YoY - Oct) 1.9% 1.9%
13.30pm CAD Core CPI (YoY - Oct) 1.9% 1.9%
19.00pm USD FOMC Meeting Minutes (Oct)