Global Market Watch - 20th September 2017
Sterling has stayed relatively firm as we wait for today's retail sales and FOMC decision. A strong retail sales number will mean Sterling gains and vice versa for a weak number, we expect an increase of 0.2%. On the Brexit front the latest REC survey showed UK employers optimism at its lowest level since the Brexit vote with all eyes on UK PM May’s Friday speech. The FT reports today that Theresa May could propose a deal with a payment of some Euro 20 billion to the EU in return for a transition period of two or three years and a start on a new trade treaty. The EU’s response will be important but overall if the UK and EU can move on to new trade treaty talks the Pound could easily benefit.
Comments from sources at the ECB said that ECB policymakers were disagreeing on whether to set a firm end date for their bond buying programme in October. They continued that the ECB rate setters wanted to be able to extend or expand their purchases if needed and concluded by saying that concern over the Euro’s strength was leading to uncertainty and divide within the ECB council. The single currency ignored this by staying firm on the day. Meanwhile global equity markets have again been making record highs and this induced CHF weakness yesterday, especially against the Euro.
Also ignored by the Euro was news that yesterday saw the first of hundreds of local mayors in Spain appear before the prosecutor for backing an illegal October 1 independence referendum. There are some 740 municipal leaders facing charges that could run from civil disobedience and abuse of office to misuse of public funds. Spanish police have also raided print shops and newspaper offices in a hunt for voting papers, ballot boxes and leaflets, while Catalonia's top court has warned newspapers not to publish campaign notices for the referendum. Our sources in Spain suggest this situation is not such an important situation but possibly a stepping stone on the way towards a legal referendum on Catalonia’s independence. Looking forward to other events for today Sweden's deputy central bank Governor Fioden speaks at 12:00 GMT.
The US Dollar was firm in early London trading as it emerged that the FBI had been eavesdropping on Paul Manafort who was the campaign manager for Donald Trump, in relation to the investigations into Russian involvement in the US elections. The afternoon trading session was a different matter with the Greenback slipping after US current account data was worse than expected.
President Trump stayed on message in front of the UN although he did vow to “totally destroy” North Korea if the US was threatened. We have the FOMC meeting this evening and ensuing press conference and expect no change apart from the announcement of the start date for balance sheet normalisation. The market will also look at the Fed’s intentions for a rate hike possibly in December this year. If the FOMC suggests this is a strong probability the Greenback could rally.
The AUD stayed firm yesterday after the RBA MPC minutes. For this evening a hawkish Fed will induce weakness in the commodity currencies with a dovish one probably seeing the opposite.