The pound soared to the top on speculations that May can secure an all-U.K. customs deal. Meanwhile, equities and higher-yielding currencies slid lower as trade war jitters dragged on risk-taking.
- AU AIG services index dips from 52.5 to 51.1 in October
- AU MI inflation gauge gains 0.1% after 0.3% uptick in September
- NZ ANZ commodity prices down by another 2.4% in October
- China’s Caixin services PMI drops from 53.1 to 50.8 in October
Trade war jitters in China
Earlier today the Caixin’s services PMI, a private report that focuses on smaller businesses, fell from 53.1 to 50.8, its lowest reading since September 2017.
Details tell us that the new business sub-index dropped to its lowest since November 2008, while new orders only rose slightly for the month.
Service providers noted “subdued demand conditions” at the start of Q4 2018, which stoked concerns that the U.S.-China trade war is starting to bite into service sector activity.
Meanwhile, Xi Jinping took a shot at reassuring the markets. In a speech, the President repeated his anti-protectionism stance and pinky swore to lower import tariffs and make it easier for foreign companies to access the economy.
Unfortunately, market players were in no mood to be reassured and they went on to price in their concerns anyway.
All-U.K. customs deal in the works?
Over the weekend Sunday Times cited “Cabinet sources” saying that PM Theresa May has secured concessions from the EU to keep all of Britain in a customs union in the event of a Brexit deal.
This basically means that Britain won’t need a separate deal for Northern Ireland, which can help speed up negotiations.
The Sunday Times also added that May is close to securing a deal on a “future economic partnership” with the EU.
May’s office has dismissed the report as “speculation,” but growing talks of Cabinet meetings being held on Tuesday and Friday are leading market bees to buzz that the weekend’s news might not be far off the mark.
Overall risk aversion
The Asian markets woke up to the red side of the charts today, as traders priced in a couple of risks to high-yielding bets like equities and commodities.
First is the upcoming U.S. mid-term elections. The event doesn’t usually move prices for long and this sharply, but the (fair) chance of Democrats gaining control of the House and possibly making it harder for Trump to fulfill his election promises caused jitters among equities investors.
The ongoing U.S.-China trade war also continued to bring bears to the market yard especially after a private report from China showed the services sector growing at its slowest pace in 13 months as orders dried up.
And then there’s the FOMC statement scheduled on Thursday. Analysts aren’t expecting another rate hike until December, but investors can take this week’s likely hawkish remarks as cues to ditch higher-yielding bets in favor of other dollar-denominated assets.
- Nikkei is down by 1.20% to 21,977.5
- A SX 200 is down by 0.19% to 5,806.3
- Shanghai index is down by 1.00% to 2,649.836
- Hang Seng is down by 2.65% to 25,785.2
Commodities were also on the risk aversion bus, with gold slipping from a steady dollar while crude oil benchmarks were dragged lower by news that the U.S. is temporarily allowing eight importers to keep on buying Iranian oil despite Iran’s sanctions kicking in today.
- Gold is down by 0.06% to $1,231.81 per troy ounce
- Brent crude oil is down by 0.21% to $72.40 per barrel
- U.S. WTI is down by 0.21% to $62.67 per barrel
Major Market Mover(s):
Pound bulls charged at the possibility of an all-U.K. customs deal that would make it easier for Theresa May to reach a Brexit deal with the EU.
GBP/USD is up by 24 pips (+0.19%) to 1.2986; GBP/JPY is up by 22 pips (+0.15%) to 146.98; EUR/GBP is down by 14 pips (-0.16%) to .8766; GBP/CHF is up by 41 pips (+0.31%) to 1.3044; GBP/CAD is up by 44 pips (+0.26%) to 1.7020, and GBP/NZD is up by 62 pips (+0.31%) to 1.9553.
There were no direct catalysts to support the move, but the franc capped mid-session trading lower against its major counterparts.
USD/CHF is up by 12 pips (+0.12%) to 1.0045; EUR/CHF is up by 11 pips (+0.11%) to 1.1435; CHF/JPY is down by 10 pips (-0.09%) to 112.67, and NZD/CHF is up by 4 pips (+0.06%) to .6671.
A weaker-than-expected PMI from China highlighted the trade war risks for China’s economy. Heck, the bulls even ignored Xi Jinping’s speech about cutting China’s import tariffs!
Since a weak Chinese economy could lead to less demand for Australia’s exports, the Aussie traded lower across the board.
AUD/USD is down by 11 pips (-0.15%) to .7187; AUD/JPY is down by 13 pips (-0.15%) to 81.35; AUD/CAD is down by 9 pips (-0.09%) to .9420; GBP/AUD is up by 69 pips (+0.38%) to 1.8077; EUR/AUD is up by 28 pips (+0.17%) to 1.5839, and AUD/NZD is down by 4 pips (-0.04%) to 1.0822.
Watch Out For:
- 8:00 am GMT: Spain’s unemployment change
- 9:30 am GMT: Euro Zone Sentix investor confidence (9.9 expected, 11.4 previous)
- 9:30 am GMT: U.K.’s services PMI (53.4 expected, 53.9 previous)