Trade Deal Hits a Roadblock ahead of BoE’s Super Thursday

Trade sentiment sours as US-China deal may be delayed; eurozone economic worries persist as IMF sounds the alarm; BoE’s Super Thursday in focus today.

Previous Day's Market Highlights

US-China trade talks appear to have hit a roadblock again; we've been here countless times before.

After two days of upbeat trade headlines, and increasing hopes that a phase one Sino-US deal was close, sentiment began to sour on Wednesday. The souring sentiment was sparked by reports that a signing ceremony between Presidents Trump and Xi may be delayed until after the NATO Summit in early December, around 3 weeks later than had been originally expected.  Such reports were later confirmed by senior officials in the Trump Administration who, while reiterating that a deal 'remains more likely than not', noted that discussions are continuing over the terms of an agreement. The latter comment is of greater importance, with the two sides evidently still some distance apart when it comes to agreeing any interim trade deal. For markets, a modest rotation into safe havens was in evidence, with the US dollar, Japanese yen and Swiss franc all remaining well-supported. Conversely, the typically risk-sensitive antipodeans lost ground, as both the Aussie and Kiwi dollars shed 0.15%.

Meanwhile, in Europe, modestly better than expected PMI figures failed to lift the euro, with concerns persisting over the longer-term health of the bloc's economy. Final survey data for October pointed to a solid pace of expansion in the services sector, the PMI reading 52.2. The composite PMI, which records output across all sectors of the economy also surprised to the upside, reading 50.6. This, however, signifies the economy remaining extremely close to stagnation, and is just above last month's six and a half year-low. The bloc is certainly not out of the woods yet.

Concerns over the eurozone economy were also flagged by the International Monetary Fund (IMF), who warned Europe to make an emergency plan for an economic slump. The IMF also warned that the economic outlook remains precarious, and that monetary policy has all but exhausted its arsenal. While hardly pertinent, with many observers - including your author - having made similar observations in the recent past, the warning provides further evidence that a co-ordinated fiscal response is required to turnaround the eurozone's economy.

Turning to political developments, sterling struck a softer tone as formal election campaigning got underway on Wednesday. The pound's modest decline, around 0.15% against both the dollar and euro, comes as markets continue to price in election-related uncertainties, and the Conservative campaign gets off to a slow start - with the resignation of Welsh Secretary Alun Cairns, and controversial comments from Commons Leader Jacob Rees-Mogg somewhat overshadowing PM Johnson's campaign launch. As expected, Boris used the campaign launch to emphasise his 'get Brexit done' message, a quote likely to crop up again and again over the coming weeks.

Away from FX, equity markets gained ground as solid corporate earnings outweighed souring trade sentiment. The pan-European Stoxx 600 ended the day 0.2% higher, while the US S&P 500 closed just shy of 0.1% higher. Finally, oil prices tumbled after data showed a larger than expected build in US oil inventories last week. Global benchmark Brent settled 1.9% lower, while US WTI crude shed 1.5%; the decline in oil prices pressured the commodity-dependent Canadian dollar, which settled 0.2% lower.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1605 1.1661 1.1427 2.01%
GBP/USD 1.2840 1.3012 1.2515 3.82%
EUR/USD 1.1060 1.1179 1.0991 1.68%
GBP/AUD 1.8680 1.9094 1.8076 5.33%
GBP/NZD 2.0205 2.0559 1.9311 6.07%
GBP/CAD 1.6935 1.7095 1.6253 4.93%

Today's Market Highlights

Today is Super Thursday, with attention set to shift to Threadneedle Street for the Bank of England's (BoE) latest policy announcement, along with the release of the quarterly Monetary Policy Report (previously known as the Inflation Report) and Governor Carney's press conference. 

Monetary policy is expected to remain unchanged at 0.75%, with ongoing uncertainties giving policymakers little room to manoeuvre with policy shifts. The MPC are likely to vote unanimously for no change, with dovish dissent unlikely despite dovish comments from some policymakers in the past few weeks.

Despite the likely unchanged policy, MPC members are likely to strike a more cautious tone on the economic outlook, as mounting political uncertainties continue to depress business investment, and the labour market shows signs of slowing. Nevertheless, policymakers will likely maintain their notional tightening bias, repeating the well-trodden line that 'gradual and limited' rate increases will be required if the economy evolves in line with the Bank's forecasts. Speaking of forecasts, a global economic slowdown, combined with the factors mentioned above, may result in a modest downgrade to GDP expectations.

At the press conference, Governor Carney will expand on the monetary policy statement, with any clues as to the policy outlook of particular interest to markets. This is scheduled to be Carney's final press conference at the BoE, with his term set to end in January; though with no successor yet announced, Carney's stay at the BoE may yet be extended once again. For the pound, a more cautious BoE may result in a brief move to the downside, however such moves are unlikely to be sustained unless policymakers explicitly mention the possibility of loosening monetary policy if uncertainties continue.

Elsewhere, today's economic calendar is barren, with last week's US initial jobless claims the only notable release. Claims are expected at 215,000, bang in line with the 4-week average.

With a quiet data calendar, increased attention will be paid to a couple of new economic forecasts this morning, with both the UK's Office for Budget Responsibility (OBR) and European Commission set to release their latest economic assessments. The OBR's report will be closely watched for the impacts of ongoing Brexit uncertainties, as well as any comments on proposed spending plans. In Europe, expectations for the German economy - the bloc's engine room - will be of particular interest, with a technical recession likely to have occurred in the second and third quarters.

Finally, today's central bank speaking calendar is also barren, with only Dallas Fed President Kaplan set to make remarks. 

Today's Economic Calendar

Time Currency Release Consensus Previous
9.30am GBP OBR Releases Latest Economic Forecasts
10.00am EUR European Commission Releases Latest Economic Growth Forecasts
12.00pm GBP BoE Policy Decision & Monetary Policy Report 0.75% 0.75%
12.30pm GBP BoE Gov Carney Press Conference
1.30pm USD Initial Jobless Claims (Nov 1) 215k 218k