Previous Day's Market Highlights
Sterling soared on Wednesday, while trade headlines became more optimistic, services PMIs painted a mixed picture, and the BoC left policy on hold.
The quid caught a bid on Wednesday, with sterling rallying to a 7-month high against the dollar, and 2 and a half-year high against the euro, as market participants began to increasingly price in the likelihood of a Tory majority come polling day in 7 days' time.
The pound's gains came as market participants became increasingly reassured by recent opinion polls pointing to the Conservatives' maintaining their lead, thus seeing market participants increase their bets on a Tory majority, and the passing of the Withdrawal Agreement by the end of January 2020.
Further aiding the viewpoint that the election is now Boris Johnson's to lose was another set of appearances from a surprisingly restrained President Trump. This week's NATO summit, and The Donald's time in London, had threatened to blow the Tory campaign off course. However, Trump made no comments on the election today, cancelling a scheduled press conference, which will likely result in sighs of relief in Conservative circles, and sighs of despair in the Labour campaign.
Looking at the sterling move in a bit more detail, the 0.75% jump against the dollar was the pound's biggest 1-day gain in 7 weeks, and saw sterling break through both the $1.30 and $1.31 handles. While the pound was unable to maintain gains above $1.31, we closed in line with the 200-week moving average, at 1.3091, which will likely prove stiff resistance.
Against the euro, sterling also broke through some key levels, rising above the €1.18 handle for the first time since March and the Parliamentary Brexit votes, to hit its highest levels since May 2017, just shy of €1.1830.
Trade - Optimism Returns
After a tumultuous two days to start the week, risk sentiment did a U-turn on Wednesday, with markets becoming a tad more optimistic on US-China trade. The optimism seemed to stem from Bloomberg headlines that the two superpowers are 'moving closer' to a phase one deal, despite recent 'heated rhetoric' between the two.
However, it should be noted that this report came from anonymous 'people familiar with the matter', and has not yet been officially confirmed, raising the potential for moves to be faded if official confirmation is not forthcoming.
Nonetheless, markets tend to think in the short-term, and risk-on moves were in evidence yesterday. As a result, both the Japanese yen and Swiss franc struggled, shedding 0.2% apiece, though antipodeans failed to take full advantage of the improving risk environment. The Kiwi dollar added around 0.1%, though the Aussie dollar settled unchanged as Tuesday's disappointing Q3 GDP figures weighed.
A Mixed Bag of PMIs
On the data front, November's services PMI surveys were the pick of the bunch on Wednesday, with the data painting a mixed picture of developed economies:
- In the eurozone, activity in the services sector increased at its slowest rate since January, though above expectations, with the PMI reading 51.9. However, momentum remains fragile, with a stagnation in new orders casting doubts on the outlook
- Here in the UK, the services PMI printed 49.3, an 8-month low; while the composite PMI - which measures output across the economy - fell to 49.3, consistent with a 0.1% contraction in GDP in the fourth quarter
- Finally, from the US, the ISM non-manufacturing gauge fell to 53.9, well below expectations, and raising concerns over spill-over effects of the recent manufacturing slowdown. However, on the positive side, new orders and employment both ticked higher, perhaps indicating that the data has bottomed
The disappointing ISM number, along with concerns about the US economy and the improving risk sentiment all acted as a drag on the dollar, which ended the day 0.25% lower against a basket of peers.
BoC - Holding Steady
In the world of central banking, the Bank of Canada left policy unchanged on Wednesday, maintaining the policy rate at 1.75% - the highest among G10 central banks.
However, the BoC struck a decidedly more hawkish tone than at the October meeting, indicating that, while trade remains the biggest risk to the outlook, it remains 'appropriate' to maintain interest rates at their current levels. Furthermore, policymakers indicated that future policy changes would require them to weigh up global uncertainties against domestic economic resilience, indicating no desire to provide accommodation in the short-term.
As a result, markets rolled back their bets on policy loosening, boosting the loonie to a 2-week high against the greenback, with a gain of 0.75% over the course of the day.
Any Other Business
- ADP employment data was Wednesday's other notable release, pointing to just 67,000 jobs being added to the US economy last month - the second lowest print since 2010. While the correlation with Friday's official labour market data is somewhat dubious, investors may now be on alert for a sub-par payrolls number
- Equity markets were well-supported by the aforementioned trade optimism; the pan-European Stoxx 600 gained just over 1%, while the US benchmark S&P 500 gained 0.6%
- A day before OPEC meet to decide on whether to extend, or deepen, production cuts, oil prices gained ground after a larger than expected draw on US inventories. US WTI crude added 4.2%, while global benchmark Brent gained 3.8%
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
After a busy Wednesday, today's data calendar is comprised of mostly second-tier releases, ensuring focus should remain on the upcoming general election, and on Sino-US trade relations.
General Election - 7 Days to Go
There is just one week to go until the general election, with sterling's trajectory once again set to depend on the latest opinion polling and sentiment towards the likely result come 12th December.
Signs that the Tories are maintaining their present lead should see sterling remain well-supported. However, in the absence of any fresh impetus, some of yesterday's gains may be pared, with the pound approaching overbought territory against both the dollar and euro.
Also of note today will be the BBC's Andrew Neil interviewing Brexit Party Leader Nigel Farage - though Farage appears to have played his cards poorly in the campaign, if the polls are correct.
Over the Channel
Meanwhile, in the eurozone, today sees the release of final Q3 GDP data, though no revisions are expected from the previous estimate. As a result, growth is expected to be confirmed at the relatively sluggish pace of 0.2% QoQ, and 1.2% YoY. The release is, however, unlikely to move the common currency, as the data has already been priced in.
This morning's retail sales numbers may have more of an impact on the euro, with sales expected to have fallen by 0.3% MoM in October. Taking into account the ongoing manufacturing slowdown, consumer spending has greater importance in supporting the economic expansion, hence this morning's release should be a useful leading indicator of Q4 GDP.
Across the Pond
A few releases are due from the US today, though all are of a lower-tier, and will likely have little immediate impact on the dollar.
The weekly read on initial jobless claims is expected to come in just under the 4-week average of 220k, while October's trade deficit is expected to narrow to 48.7bln - perhaps proving that President Trump's hawkish trade policies are having the desired effect.
Markets will also receive October's factory orders data, a useful leading indicator of health in the manufacturing sector, which are expected to show orders increasing at 0.3% MoM.
- A couple of Canadian release are also due today, namely October's trade figures and November's Ivey PMI. The former, however, typically has little impact on price action, while the latter is too volatile a data series to be of any real use
- In the world of monetary policy, Fed Vice Chair for Supervision Randal Quarles will once again be testifying to Congress today, while the BoC's Lane is also set to make remarks
- Finally, OPEC meet today to discuss extending, or deepening, existing production cuts, with oil markets on high alert for the outcome of today's discussions
Today's Economic Calendar
|10.00am||EUR||GDP (QoQ - Q3 F)||0.2%||0.2%|
|10.00am||EUR||GDP (YoY - Q3 F)||1.2%||1.2%|
|1.30pm||USD||Initial Jobless Claims (Nov 29)||215k||213k|
|3.00pm||USD||Factory Orders (MoM - Oct)||0.3%||-0.6%|
|3.00pm||CAD||Ivey PMI (Nov)||53.8||48.2|