Sterling surges despite Brexit and political uncertainty, U.S. dollar falls due to tax reform doubts, WTI oil spikes as Saudi political turmoil sparks fear of supply problems

Nov 7 • Morning Roll Call • 180 Views • No Comments

Having fallen consistently versus several of its peers last week, as the BoE’s dovish monetary policy statement failed to satisfy investors, the U.K. pound recovered much of its lost ground on Monday; GPB/USD rose by circa 0.7%, whilst EUR/GBP fell by a similar amount. The gains, versus the majority of sterling’s peers, came despite Brexit uncertainty reappearing and political scandals hitting the governing Tory party from all sides; harassment, tax avoidance and ministers off message and keeping the P.M. in the dark regarding their various international meetings. Both leaders of the main U.K. political parties addressed the CBI, a leading and influential business body, on Monday, the soothing words regarding a smooth transition, may have calmed investor fears. However, that potentially friction free exit, is not the U.K.’s gift to deliver, the remaining 27 E.U. members will dictate conditions on the single entity leaving.

Other U.K. economic calendar data was thin on the ground, other than car sales, which have fallen by -12.2% YoY, indicating that; with private debt to GDP at 231% and household debt to income at 126%, the U.K. consumer may be finally choking on credit. The UK’s FTSE 100 index closed up marginally, by 0.03% on the day.

The U.S. dollar fell versus many of its peers during Monday’s trading sessions, despite initially rising early in the European session. Versus yen the USD lost circa 0.3%, the dollar index also fell by a similar amount during the day. The DJIA and SPX closed up marginally. Both equity and dollar investors appeared to be treading water, as they coped with the lack of fundamental data to move markets, with very little progress being made in relation to the tax cuts promised by Trump, during and since last November’s election win.

Geopolitical issues were, however, at the forefront of investors’ minds on Monday; Saudi Arabia leaders appear to be conducting a purge on various members of their royal family, causing WTI oil to rise to its highest level since June 2015, up 3.5% on the day. Japan’s leaders are voicing fears with regards to North Korea and China, with China itself raising its own concerns that its monetary system and economy may be at best overheating, or at worst, close to breaking point. China’s financial system is becoming significantly more vulnerable due to excessive leverage, according to the PBOC central bank governor Zhou Xiaochuan. China’s risks, include some that are, according to Xiaochuan; “hidden, complex, sudden, contagious and hazardous,” and this is despite the “overall health of the financial system remaining good”, he wrote in a lengthy article, published on the People’s Bank Of China website over the weekend.

Eurozone news concerned Germany’s factory orders beating the forecast of 7.1% growth by coming in up 9.5% YoY. Swiss CPI inflation came in right on forecast at 0.7% YoY. Many of the various Markit PMIs for the individual countries; France, Italy and Germany missed the consensus forecasts, however, Eurozone services and composite PMIs beat forecasts. The Sentix investor confidence reading came in at 34, beating the 31 forecast by some margin.

EURO

EUR/USD initially fell in the morning session by 0.3%, just short of S1, to then recover some lost ground to close the day out down circa 0.1%, at 1.608. Versus both AUD and NZD the euro fell through S1 down circa 0.4% on the day. EUR/JPY slipped to S2, down circa 0.6% on the day at 132.0. EUR/GBP fell by circa 0.8% on the day, giving back circa 1% of the 1.75% gains made since last Thursday. EUR/CHF also fell through S2, down circa 0.7% on the day, at 1.158.

STERLING

GBP/USD rose by circa 0.7%, breaching R2 to close out at 1.317. Having risen through R2, GBP/NZD slipped back to R1 and to 1.896, up approx 0.3% on the day. GBP/JPY closed out just shy of R2, up approx 0.6%, at circa 149.78. GBP/CHF also rose through R2, up 0.7% at 1.313.

U.S. DOLLAR

USD/JPY whipsawed from bullish to bearish throughout two sessions. Rising through R1 and up 0.5% during the European session, the currency pair reversed direction, crashing through the daily pivot point to end the trading day down circa 0.3% at 113.70. This pattern of reversal, from bullish to bearish, was evident versus the Canadian dollar; USD/CAD down 0.3% and the Swiss franc, USD/CHF down 0.2% on the day.

EQUITIES AND COMMODITIES SNAPSHOT FOR NOVEMBER 6th

• DJIA closed up 0.04%.
• SPX closed up 0.13%.
• FTSE 100 closed up 0.03%.
• DAX closed down 0.07%.
• CAC closed down 0.19%.
• WTI oil ended the day up 3.5% at $57.40 per barrel.
• Gold closed up 0.9% at $1281 per ounce.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 7th

• EUR German Industrial Production n.s.a. and w.d.a. (YoY) (SEP).

• EUR Markit Germany Construction PMI (OCT).

• GBP Halifax House Prices (MoM) (OCT).

• EUR Markit Germany Retail PMI (OCT).

• EUR Euro-Zone Retail Sales (YoY) (SEP).

• USD JOLTS Job Openings (SEP).

• CAD Bank of Canada’s Stephen Poloz Speech in Montreal.

• CAD Bank of Canada Governor Poloz Press Conference.

• USD Consumer Credit (SEP).

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