What did I write about before Brexit? I guess I must’ve written every day about boring old stuff like interest rate differentials and relative economic growth rates. Now I can masquerade as a political pundit and an expert on arcane aspects of British constitutional law, which doesn’t actually exist as far as I can tell. Brexit is the gift that keeps on giving for people like me who have to write a daily comment.
The stock market sentiment continues to improve after sharp interest rates decline, especially in the third quarter. The main indicators on a global basis have stabilized, hovewer the Political Risk (Britain-Italy etc) still exists, but there is a visible improvement during the last period.
US stocks remain nervous, but the chance to insert in the recession trend is minimized. Mixed economy data and the political news coming from theUS pushed the markets to adopted wait and see stance. Impeachment proceedings will likely add to uncertainty and impede any possible legislative progress. We think impeachment is likely to be negative on consumer and business confidence.
WTI and Brent oil prices rally by 2% during the Friday’s morning European trading session at $54.80 and $60.70 per barrel respectively after a report that an Iranian oil tanker caught fire after two missiles attacks near the Saudi Arabian port city of Jeddah in the Red Sea, adding once again a geopolitical risk premium in the oil prices together with the bullish positive trade talks between US-China which are close to announce a partial trade deal.
I don’t have any rates tables today because I was out of the market yesterday, but sterling seems to be the focus of attention. It plunged on Tuesday after UK PM Boorish Johnson talked with German Chancellor Merkel by phone. Afterwards, Downing Street apparently told reporters that taks were “close to breaking down.”
WTI and Brent oil price are trading lower by -0.30% at $52.50 and $58.10 respectively during the start of the Wednesday’s European trading session as the relationship between China and the U.S. continues to deteriorate after the latest tit-for-tat restrictive measures between the two countries despite the coming US-China trade negotiations starting by tomorrow.
JPY was the big mover overnight. I suspect this was due to a report from Nowcast, a new daily data service that uses scanner data from about 300 supermarkets across Japan to give daily information on prices and quantities purchased. According to their real-time data, supermarket sales fell 10%-20% yoy during the first week of October, following the Oct. 1st rise in the consumption tax from 8% to 10%.
Well well well…I always admit it when I’m wrong, so do you mind if I take a moment to admit it when I’m right, too? On Friday morning I said it was odd that JPY had gone up while CHF had gone down, and that “with CHF/JPY at the lowest it’s been in about three years, it’s due for a rebound at some point.” That “some point” turns out to have been Friday: CHF was indeed up sharply, far outperforming the other currencies, while JPY was down. Net net, CHF/JPY was the big mover of the day, something I’ve rarely seen happen.
Global equity markets moved higher after two-days of brutal sell-off as the investors bought the dip in the stocks in anticipation that the Federal Reserve will cut again the interest rates in the next October meeting, while the market awaits the US Nonfarm payrolls this afternoon.
NZD and AUD led the pack today, but frankly speaking I can’t find any explanation for it for the life of me. “Short covering” is the best I can find – that’s generally the explanation used when no one has a good idea. NZD/USD went vertical several times during the day, so that does seem possible – no news to trigger the move. In fact, Australian retail sales missed estimates (+0.4% mom vs +0.5% expected, although previous month revised up to +0.0% from -0.1%). There’s no general “risk on” mood as stocks in Asia are mixed.
The disappointing ADP report raised expectations of further US rate cuts. The probability of a rate cut at the Oct. 31st meeting rose to 73% from 61% the previous day. The ADP report was slightly weaker than expected at 135k vs 140k expected, but what really hit the market was the downward revision to the previous month’s figure to 157k from 195k. That weakened the dollar somewhat, particularly vs JPY. (The USD TWI rose slightly however because of the large role that CAD plays in it – see below.)
Overnight the Reserve Bank of Australia (RBA) cut the cash rate another 25 bps to 0.75%. As before, they said that they are prepared to cut further if necessary. The key change was some clarification of their goal: whereas before they said rates would have to stay low “to make progress in reducing unemployment and achieve more assured progress towards the inflation target,” now they are saying they want “to reach full employment and achieve the inflation target.”