It’s only the first trading session of the week and already traders are busy pricing in a couple of market themes.
Here’s what happened so far:
- U.K.’s Rightmove house price index up by 1.0% vs. 0.7% uptick in September
- Japan’s industrial production revised lower from 0.7% to 0.2% in August
EU and Britain pause Brexit talks
A flurry of activity over the weekend raised expectations of a Brexit deal being officially endorsed in time for the EU meeting this week.
Instead, we learned that Britain and EU paused the negotiations until the summit in Brussels as “a number of unresolved issues” remained between Brexit Secretary Dominic Raab and his EU counterpart Michel Barnier.
We met today @DominicRaab and UK negotiating team. Despite intense efforts, some key issues are still open, including the backstop for IE/NI to avoid a hard border. I will debrief the EU27 and @Europarl_EN on the #Brexit negotiations.
— Michel Barnier (@MichelBarnier) October 14, 2018
The delay is bad news for Britain since EU leaders are not scheduled for another official meet until December and that said leaders won’t be inclined to schedule any more meetings unless they see significant progress.
It also doesn’t help that Theresa May’s ground is getting shakier. Over the weekend the Brexit spokesman of the Democratic Unionist Party (DUP), May’s parliamentary ally, threatened that DUP’s 10 parliament members would vote against the U.K. budget and possibly even a vote of no-confidence if May breaks her pinky promises during Brexit talks.
For newbies out there, you should know that DUP is against any checks between the Northern Ireland and mainland Britain after Brexit. At the same time, it also doesn’t want additional customs red tape with Ireland, an EU member. Talk about tricky situations!
U.S. to include currencies in trade deals?
Over the weekend, U.S. Treasury Secretary Steven Mnuchin shared that Washington views the currency chapter in the U.S.-Mexico-Canada Agreement (USMCA) as a model for future trade deals to deter its partners from currency manipulation.
Mnuchin said that
“We are going to make sure that currency is definitely part of these discussions. We are going to make sure that whatever we make up on trade we don’t lose on currencies…”
If the U.S. does include currency-related policies in its trade deals, then countries like Japan and China could have more trouble closing deals with the U.S. than markets originally predicted.
Overall risk aversion
A strong trade report from China might have deterred some market bears last Friday, but they’re coming back today as traders continue to price in the impact of the U.S.-China trade war; rising U.S. bond yields, and a bit of uncertainty ahead of the earnings season.
- Nikkei is down by 1.47% to 22,360.4
- A SX 200 is down by 0.20% to 5,818.4
- Shanghai index is down by 0.79% to 2,568.258
- Hang Seng is down by 1.01% to 25,541.7
Commodity prices had more luck, with gold taking advantage of the risk aversion and oil prices rising on the back of Saudi Arabia possibly using its oil production to help boost oil prices.
- Gold is up by 0.44% to $1,221.90 per troy ounce
- Brent crude oil is up by 1.12% to $81.41 per barrel
- U.S. WTI is up by 0.85% to $72.10 per barrel
Major Market Mover(s):
The pause in negotiations, amidst expectations of a proposal being officially endorsed ahead of the EU meeting, didn’t do the pound any favors.
GBP/USD is down by 40 pips (-0.31%) to 1.3106; GBP/JPY is down by 59 pips (-0.40%) to 146.89; GBP/AUD is down by 42 pips (-0.22%) to 1.8444; GBP/CAD is down by 53 pips (-0.31%) to 1.7071; GBP/CHF is down by 57 pips (-0.44%) to 1.2986, and EUR/GBP is up by 24 pips (+0.28%) to .8810.
JPY and CHF
Risk aversion in the markets pushed low-yielding currencies like the yen and franc higher across the board. The yen even received an extra boost from Washington possibly officially labeling Japan as a currency manipulator.
USD/JPY is down by 13 pips (-0.11%) to 112.08; EUR/JPY is down by 28 pips (-0.21%) to 129.41; AUD/JPY is down by 16 pips (-0.20%) to 79.64, and NZD/JPY is down by 15 pips (-0.20%) to 72.87.
USD/CHF is down by 8 pips (-0.08%) to .9908; EUR/CHF is down by 20 pips (-0.21%) to 129.41; NZD/CHF is down by 11 pips (-0.16%) to .6442, and AUD/CHF is down by 11 pips (-0.16%) to .7040.
Watch Out For:
- 7:15 am GMT: Switzerland’s PPI (0.1% expected, 0.0% previous)