Sterling slumps as political chaos grips the U.K. government, global equities lack direction, Gold’s safe haven appeal resurfaces

Nov 9 • Morning Roll Call • 44 Views • No Comments

The U.K.’s political and Brexit situation is causing investors’ concern. News that certain major international U.S. banks will put London exit plans in place, unless favorable “soft Brexit” progress is made on the negotiations by January, added to ministers resigning, or being accused of the most sinister and grave forms of harassment, combined with the economic uncertainty, caused by general government mismanagement and the Brexit confusion, has generated a toxic profile for the country’s previous stable investment image.

The U.K. pound fell as a consequence of the turmoil, GBP/USD falling by 0.6% at one stage during proceedings, whilst EUR/GPB rose by approx. 0.5%. Markets have yet to price in the cost of a change in government, but with such a wafer thin majority, only bolstered by the Northern Ireland party the DUP supporting them, Theresa May’s government is holding onto power by a gossamer thread.

From North America the fundamental news was thin on the ground, notwithstanding the weekly crude and gasoline inventories, which both missed and beat forecasts. U.S. equity markets rose moderately for the second day in series, as the longstanding doubts regarding the Tump tax breaks were highlighted once again. News from China has failed to alarm global investors, since a major shock took place in 2015, however, the latest: export, import and balance of trade figures missed targets and once again raised doubts as to the sustainability of China’s exponential economic growth.

The opposition party in the USA; the Democrats, won certain key governor seats on Tuesday, in Virginia and New Jersey, providing an unwelcome anniversary for Trump’s election win and questioning what he’s achieved over the past year, other than creating deep divisions, both domestically and internationally. The chance of his flagship tax reforms becoming law (in the form he requested), now looks nonexistent. Mortgage applications showed zero growth according to last week’s data, whilst housing starts and the permits for house building in Canada, showed significant gains. The U.S. dollar experienced mixed fortunes during Wednesday’s trading sessions; down marginally versus yen, up versus the U.K. pound and close to flat versus the euro. WTI oil fell by circa 0.7%, the Saudi potential disruption effect now looks over traded, whilst inventories missed forecast, suggesting that domestic consumption isn’t as strong as anticipated.

Eurozone fundamental news was also scarce on Wednesday, the euro reacted versus other domestic news events, rather than having its course shaped by news from the leading European economies. Versus sterling the euro rose sharply, as a consequence of the UK’s domestic political turmoil, versus yen the single bloc currency fell sharply to then recover the majority of its lost gains, and versus the U.S. dollar the euro was effectively flat. The euro did, however, fall sharply versus the kiwi, as did the majority of NZD peers, as despite the RBNZ keeping the interest rate unchanged at 1.75%, the New Zealand dollar rose sharply, due to the more hawkish monetary statement concerning inflation control, delivered by the central bank as the no change interest rate announcement was revealed.

STERLING

GBP/USD fell by circa 0.6% to S2 in the European morning session, to then recover, ending the day down just below S1, down approx. 0.4%, at 1.312. GBP/NZD fell by circa 1% to breach S3, GBP/JPY also breached S3, to recover slightly, ending the day down approx. 0.6% at 149.3, resting on S2. GBP/AUD and GBP/CAD both breached S2, ending the day down circa 0.5%.

U.S. DOLLAR

USD/JPY initially fell through S1 during the European/London session, to then recover to end the day down circa 0.1%, at 113.85. USD/CHF finished the day up circa 0.2%, still close to the crucial handle of 1.000. USD/CAD slipped, down approx. 0.2%, to 1.273.

EURO

EUR/USD ended the day flat and close to the daily pivot point level, at 1.159. EUR/NZD fell sharply, by circa 0.6%, through to S2. EUR/JPY whipsawed through a tight bearish range, rising marginally up through the daily pivot point level, then falling through S2, to then recover the day’s losses to end flat at 132.0, close to the daily pivot point level. EUR/GBP rose by up to circa 0.6% on the day breaching R2, before slipping back, whilst retaining circa 0.5% of the daily gains at 0.883.

GOLD

Gold’s safe haven appeal has reappeared over recent days, having fallen sharply from mid to late October, after at one point (during mid October), breaching the critical 1300 handle. The security has whipsawed through a wide range surrounding the 100 DMA level over recent weeks and has now (once again) breached the critical moving average to the upside. On Wednesday Gold breached R2, up circa 0.7% to then give up some gains, ending the day at $1281 per ounce, up circa 0.4% on the day.

EQUITIES SNAPSHOT FOR NOVEMBER 8th

• DJIA closed up 0.03%.
• SPX closed up 0.14%.
• FTSE 100 closed up 0.22%.
• DAX closed up 0.02%.
• CAC closed down 0.17%.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 9th.

• EUR German Trade Balance (SEP).

• EUR German Exports s.a. (MoM) (SEP).

• EUR German Imports s.a. (MoM) (SEP).

• EUR ECB Publishes Economic Bulletin.

• CAD New Housing Price Index (YoY) (SEP).

• USD Initial Jobless Claims (NOV 04).

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