Dollar domination was still the name of the game for the rest of the New York session, as the U.S. currency got an extra kick from upbeat ISM manufacturing PMI.
The pound was under some pressure during the BOE Inflation Report hearings, but it managed to bounce along with the euro when rumors of the EU being willing to adjust their Irish border stance came out.
- BOE Gov Carney: Willing to stay through Brexit transition as BOE head
- Carney: Less than 20% of firms have contingencies for “no deal” Brexit
- BOE official Haldane: Odds of “no deal” up to 25% from 20% months ago
- Haldane: Shock to prices won’t be one-off, could damage supply capacity
- Canadian manufacturing PMI dipped from 56.9 to 56.8
- U.S. ISM manufacturing PMI jumped from 58.1 to 61.3 vs. 57.6 consensus
- U.S. construction spending up 0.1% vs. 0.5% forecast
- IBD/TIPP economic optimism index down from 58.0 to 55.7 vs. 57.2 forecast
- New Zealand GDT auction yielded 0.7% dip in prices, -3.6% previous
- Australia’s AIG services index down from 53.6 to 52.2
BOE Inflation Report hearings
Policymakers from the U.K. central bank, including head honcho Carney himself, shared their economic outlook to Parliament and it’s no surprise that Brexit issues took center stage.
Guv’nah Carney tried to assure a smooth transition throughout the breakup process with the EU as he mentioned that he is willing to stay on as central bank head, possibly until beyond next year.
Although Carney warned that the U.K. economy could suffer a shock in a “no deal” Brexit situation and that sterling could take a huge hit, he pointed out that this would be an extreme scenario. He added that less than 20% of British firms have made contingency plans for operations if this happens.
However, BOE Chief Economist Haldane noted that the odds of a “no deal” outcome have risen from 20% to 25% over the past months. He added that the potential shock to prices in this scenario wouldn’t just be a one-off and instead could damage the supply capacity of the economy.
Furthermore, Haldane projected that these pass-through effects could last a number of years and affect their policy outlook.
Upbeat U.S. ISM manufacturing PMI
Data from Uncle Sam turned out much better than expected, lifting NFP expectations and reminding traders that the Fed is poised for more rate hikes this year.
The ISM manufacturing PMI for August jumped from 58.1 to 61.3 to reflect a stronger pace of expansion versus expectations of a dip to 57.6. Underlying data revealed that the employment component rose from 56.5 to 58.5 during the month, although the indices for production and new orders led the gains.
EU looking at Irish border options
Supporting the earlier narrative that the EU might be willing to make concessions in Brexit negotiations, an EU lawmaker shared that they might be open to adjusting their stance on the Irish border backstop.
Recall that this issue has been a thorn in the side for negotiators as the EU initially set out a plan for avoiding a hard border in order to keep Northern Ireland within the bloc and single market – something that U.K. PM May’s government has strongly opposed since this would result to a customs frontier between the U.K. and the island.
Both sides continue to draft up proposals that could be politically acceptable, but the clock is ticking for them to come up with a solution that is key to striking a Brexit agreement and preventing a “no deal” situation. Neither the U.K. nor the EU have shown much flexibility on this Irish border backstop issue… until now.
According to Danuta Hubner, chairperson of the European Parliament’s Constitutional Affairs Committee:
“It has definitely never been the intention of the EU to threaten the territorial integrity of the UK with the backstop. It has definitely never been the intention of the EU to threaten the territorial integrity of the UK with the backstop”
Lord King is not impressed.
Trade jitters keep risk-taking in check
Wall Street still seems to be on edge ahead of NAFTA talks resuming and the next set of tariffs on China taking effect.
- Dow 30 index is down 12.34 points to 25,952.48 (-0.05%)
- S&P 500 index is down 4.80 points to 2,896.72 (-0.17%)
- Nasdaq is down 18.29 points to 8,091.25 (-0.23%)
Commodities are also in the red:
- Gold is down to $1,193.25 per troy ounce (-0.66%)
- WTI crude oil is down to $69.29 per barrel (-0.74%)
U.S. bond yields ticked higher, likely on account of the upside PMI surprise.
Major Market Mover(s):
The Greenback carried on with its climb for the most part of the session, getting additional support from upbeat economic data and some risk-off flows.
USD/JPY advanced from 111.24 to 111.47; USD/CHF is up from .9737 to a high of .9768 then retreated back to .9747; AUD/USD stayed below the .7200 handle, and USD/CAD popped up to a high of 1.3209.
Sterling was off to a shaky start right around Carney’s testimony in Parliament but got a boost later in the session when it was suggested the EU could tweak its Irish border stance.
GBP/USD slid to a low of 1.2810 then recovered to a high of 1.2863; GBP/JPY edged down to 142.60 then bounced back to a high of 143.38; EUR/GBP was trading around the .9025 area then dipped to a low of .8990.
The Loonie was still under a lot of pressure for the rest of the trading day, owing to Trump’s tweets downplaying a possible NAFTA deal just before talks resumed.
Market watchers might also be pricing in expectations ahead of the BOC decision coming up. Here’s what to expect.
GBP/CAD climbed from 1.6861 to a high of 1.6957; EUR/CAD advanced from 1.5200 to 1.5265; AUD/CAD rallied to .9462, and CAD/CHF is breaking below the .7400 mark.
Watch Out For:
- 1:00 am GMT: New Zealand ANZ commodity prices
- 1:30 am GMT: Australia’s quarterly GDP (0.7% growth expected, 1.0% previous)
- 1:45 am GMT: Chinese Caixin services PMI (dip from 52.8 to 52.7 eyed)