Sterling continued to recover ground on expectations that a ‘no-deal’ Brexit would be avoided.
Risk appetite strengthened following an easing of political concerns with the announcement of US-China trade talks in October amplifying positive sentiment.
Equity markets secured significant gains while bond yields moved higher. Defensive currencies retreated, although losses were measured amid underlying uncertainty.
The dollar lost ground as yield spreads narrowed with EUR/USD trading above 1.1000.
Sterling continued to recover ground on expectations that a ‘no-deal’ Brexit would be avoided at the end of October as the House of Commons approved legislation.
Oil prices moved sharply higher amid increased Iran tensions and stronger risk conditions, although inventory data triggered a correction.
Precious metals were underpinned by a weaker dollar but retreated from highs as risk appetite strengthened.
The Euro-zone PMI services-sector index was revised slightly higher to 53.5 from the flash reading of 53.4 with the French index at 9-month highs. Incoming ECB President Lagarde stated that a highly accommodative monetary policy was needed, although the bank did not need to be guided by markets. Overall, there was some fresh speculation that the ECB package of monetary measures in September would fall short of market expectations which encouraged an element of short covering and US-German 2-year yield spreads narrowed to the lowest level since October 2017 which provided net Euro support.
The UK PMI services-sector remained in expansion territory for August, although there was a retreat to 50.6 from 51.4 and below market expectations with business confidence at 3-year lows. The composite index just held above the 50.0 threshold, but the data suggested that GDP is liable to contract slightly for the third quarter which maintained negative sentiment.
Although political tensions remained extremely high, GBP/USD held above 1.2200 amid short covering.
Bank of England Governor Carney stated that the worst case in a ‘no-deal’ Brexit had now eased, but the economy was weak. He indicated that he would back monetary easing in the event of a disorderly Brexit, although other members were less convinced given a likely inflation spike. The government announced increased budget spending which would boost demand.
The House of Commons passed legislation to prevent a ‘no-deal’ on October 31st with expectations that the legislation would be approved this week while Prime Minister Johnson’s call for a General Election was rejected. Sterling continued to gain some relief, although there was still an extremely high degree of uncertainty given on-going manoeuvring and potential surprises.
|07:00||German Factory Orders (M/M)(JUL)||-1.50%||2.50%|
|13:15||USD ADP Employment Change(AUG)||148K||156K|
|13:30||Nonfarm Productivity (Q/Q)||-||2.30%|
|13:30||USD Continuing Jobless Claims||1.685K||1.698K|
|13:30||USD Initial Jobless Claims||215K||215K|
|14:45||USD Markit PMI Composite(AUG)||-||50.9|
|14:45||USD Markit Services PMI(AUG)||-||50.9|
|15:00||USD Factory Orders(JUL)||1.00%||0.60%|
|15:00||USD ISM Non-Manufacturing PMI(AUG)||54.1||53.70|
|15:00||USD Durable Goods Orders (M/M)(AUG)||-||2.10%|
|15:30||BoE MPC Member Silvana Tenreyro Speech||-||-|
|15:30||USD Crude Oil Inventories||-2.112M||-10.027M|
|17:00||SNB Chairman Jordan Speaks||-||-|
|23:30||AiG Construction Index(AUG)||-||39.1|