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Sterling off low as main elements of Brexit text ready. But EU also said some key issues remain under discussion

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    ActionForex.com
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    Sterling is given a lift off today’s low after Financial Times reported that the main elements of a Brexit treaty text are ready. According to EU chief Brexit negotiator Michel Barnier, the documents could be presented to the UK cabinet on Tuesday.

    However, it should be noted that it’s a “known” that the “main elements” are ready. A few weeks ago, it was like 95% completed. Now it maybe 99.9%. But it’s not done until all is done. There is so far no news regarding the Irish backstop. So the piece of news is not so much news.

    Also, Barnier briefed EU ministers on negotiation progress today. The post meeting statement is rather reserved. The EU statement noted:

    —

    The Commission’s chief Brexit negotiator, Michel Barnier, informed the EU27 ministers of the situation following negotiations with the UK over the last few weeks. Michel Barnier explained that intense negotiating efforts continue, but an agreement has not been reached yet. Some key issues remain under discussion, in particular a solution to avoid a hard border between Ireland and Northern Ireland.

    “In these final stages of the negotiations, ministers showed again today that we are determined to keep the unity of the EU 27. We have reconfirmed our trust in the negotiator. And we support his efforts to continue working towards a deal.”

    Gernot Blümel, Austrian Federal Minister for the EU, Art, Culture and Media

    During the meeting, ministers however also recalled the need to continue the work at all levels on preparations for every possible scenario.

    Full statement here.

    —

    It doesn’t sound like there is any breakthrough.

    European Update: Sterling soldoff on Brexit regress, Euro follows closely

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      ActionForex.com
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      Selloff in European majors, led by Sterling, intensify in European session today. It now looks like Brexit negotiation has not just stalled, but regressed. UK Prime Minister Theresa May’s spokesman James Slack said the Cabinet has backed May in Brexit and expects them to continue to do so. But apparently, May is starting to lose support even from the remain camp in her party. May is moving backward.

      Euro is not far behind with EUR/USD taken out 1.13 key support firmly. EUR/JPY also broke 128.60 near term support. Italian Prime Minister office denied that there would be a cabinet meeting on budget today. Deputy Prime Minister Luigi Di Maio continued with populist rhetoric and said respecting EU budget limit is suicidal. We’ll see what revised plan they’re going to re-submit to the European Commission tomorrow.

      For now, Canadian Dollar is trading as the strongest one for today. But that’s firstly because it’s digesting last week’s broad based loss. Secondly, Canada is not at the center of any storm for now. Third, WTI crude oil recovers today on Saudi Arabia’s export cut and is back above 60. Dollar is the second strongest, followed by Yen and both are showing promising technical developments.

      In other markets, major European indices are soft today. At the time of writing:

      • FTSE is flat
      • DAX is down -0.70%
      • CAC is down -0.16%
      • German 10 year yield is down -0.0198, at 0.389, back below 0.4
      • Italian 10 year yield is up 0.034 at 3.432. That is, spread with German is back above 300

      Earlier in Asia:

      • Nikkei rose 0.09% to 22269.88
      • Hong Kong HSI rose 0.12% to 25633.18
      • China Shanghai SSE rose 1.22% to 2630.52. But that’s seen mainly as gap covering.
      • Singapore Strait Times dropped -0.32% to 3068.15

      ECB VP de Guindos: Some risks are building up in the financial system

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        ActionForex.com
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        ECB Vice President Luis de Guindos warned in a speech today that while the fundamentals for solid growth rates over the next two years are still in place, some risks are building up in the financial system. The first one is that current US expansion is “now significantly longer than historical norms”. A down turn in the US “could trigger a reassessment of riskier asset classes.”

        Secondly, “tensions have grown in emerging market economies: due to strong US Dollar and increased trade frictions. Such developments may “undermine global growth prospects and ultimately lead to abrupt increases in risk premia”.

        Thirdly, there were “re-emerging debt sustainability concerns” in Europe, both in public and private sector. And, “Italy is the most prominent case at the moment”. Meanwhile, “strong market reactions to political events have triggered renewed concerns about the sovereign-bank nexus in parts of Europe” But contagion has been “limited” so far.

        De Guidndo’s full speech “Coming to the forefront: the rising role of the investment fund sector for financial stability in the euro area“.

        BoE Broadbent warns sequence of Brexit events in the coming months could change economic outlook materially

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          ActionForex.com
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          BoE Deputy Governor Ben Broadbent reiterated in a CNBC interview that the central bank’s forecasts were “conditioned on an assumption that there will be a deal” on Brexit. In particular, there would be a “transition period agreed”. And to him, a Brexit deal is still “the most likely outcome”. However, he also emphasized that “the sequence of events over the next two to three months could change the outlook materially,”

          On recent volatility in Pound exchange rate he noted “obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”

          On the economy, He said that “even though GDP (gross domestic product) growth has been weaker than certainly pre-crisis rates, it’s been strong enough to allow the unemployment rate to fall further to reach 40-year lows and that in turn has been strong enough to push our wage growth which is momentarily higher since any time since the crisis,”

          He added that “we’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years.” And, the MPC “always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”

          While Broadbent was still optimistic on Brexit deal, the developments from the weekend were negative. Prime Minister Theresa May has called off an special cabinet meeting on Brexit today, due to objections to her plan from within the party. Fresh selling is seen in the Pound on news that the extra EU summit is now ruled out as there won’t be enough progress to make it meaningful.

          China MOFCOM: US trade friction has limited impact, but 2019 more adverse and complex

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            ActionForex.com
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            The Chinese Ministry of Commerce released Fall 2018 “China Foreign Trade Situation Report” today. In a statement, MOFCOM noted that China’s foreign trade maintained a “stable and good trend” and in 2018 up to Q3. And, the current US-China trade friction has “limited impact” on China’s foreign trade.

            MOFCOM also noted that current international demand is “relatively stable”. Domestic demand is “growing steadily”. And conditions exist for steady growth in foreign trade. Nonetheless, with higher base effect, Q4’s import and export growth could be dragged down.

            Additionally, MOFCOM also said 2019 trade development will be “more adverse and complex”. It noted increasing downside risks in the world economy and protectionism. The report urged measures like reducing burden on bother import and export businesses, and real implementation of trade policies.

            Full release in Simplified Chinese.

            Bank of France: Q4 GDP to growth 0.4%

              By
              ActionForex.com
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              Bank of France manufacturing business sentiment indicator dropped to 103 in October, down from 104. The slowdown was “essentially because of a sluggish automobile sector.”

              Services business sentiment indicator was unchanged at 102. Construction business sentiment indicator rose to 106, up from 105. “Construction sector activity grew significantly, for both structural and finishing works.”

              Bank of France said according to the monthly index of business activity, GDP should grow 0.4% in Q4.

              Full release here.

              EUR/USD breaks 1.13 as dollar buying jumps in, 1.1186 next

                By
                ActionForex.com
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                EUR/USD finally broke 1.1300 key support level as a wave of Dollar buying jumps in. The down trend from 1.2555 should have resumed. Next downside target is 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Based on current momentum, it should be too difficult to get through this level. The real test will lie in 61.8% projection of 1.2555 to 1.1300 from 1.1814 at 1.1038. Reaction from there will show if there is downside acceleration.

                WTI oil back above 60 as Saudi Arabia cuts oil exports starting Dec

                  By
                  ActionForex.com
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                  WTI crude oil opened the week higher and is back above 60. Saudi Arabia announced during the weekend to cut oil exports by 500k bpd in December. Its Energy Minister Khalid Al-Falih said on Sunday that demand for Saudi oil is “tapering off” partly due to seasonal factors. And, he pledged that “we as responsible producers are going to work, and work hard, to balance the market within a reasonable corridor.”

                  The OPEC+ also said in a post-meeting statement that it might need new strategies onwards. It said “the committee reviewed current oil supply and demand fundamentals and noted that 2019 prospects point to higher supply growth than global requirements.” And, weaker global economic growth “could lead to widening the gap between supply and demand.”

                  WTI crude oil topped at 77.06 back in early October but then persistently dropped to as low as 59.37 last week. A key factor driving the free fall was the erratic sanction policy of the US on Iran. Trump initially insisted to restrict all Iranian exports to the world. But it turned out that waivers were granted to eight countries on oil trade with Iran, including Taiwan.

                  Technically, today’s recovery is so far not strong enough to warrant a change in near term down trend.

                  Japan PM Abe to boost infrastructure spending to ensure recovery continues

                    By
                    ActionForex.com
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                    Japanese Prime Minister Shinzo Abe is pushing for more public infrastructure spending in the upcoming fiscal year. At the Council on Economic and Fiscal Policy (CEFP) meeting today, Abe requested his cabinets to draw out plans with focuses strengthening infrastructure to withstand earthquakes and frequent flooding.

                    Economy Minister Toshimitsu Motegi said after the CEFP that “the prime minister asked me to take firm measures to ensure that our economic recovery continues.” Motegi added that Abe also said “public works spending program expected at the end of this year should be compiled with this point in mind.”

                    A preliminary public works plan will be compiled by the end of this month and the final version would be ready by the end of the year.

                    Italy Tria to lower growth forecast to meet EU budget demand

                      By
                      ActionForex.com
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                      Italy was requested by the European Commission to submit a new or revised draft budget plan (DBP) by November 13, tomorrow, after rejection. Ahead of that, it’s reported that Economy Minister Giovanni Tria is considering to tweak the plan by lowering 2019 growth forecast.

                      According to Italian coalition government’s own budget, 2019 GDP growth is projected at 1.5%. And, the budget deficit target is 2.4% of GDP. Tria has pledged last week to maintain the “pillars” of the budget. And clearly, the pillars don’t necessarily include growth forecast.

                      La Repubblica reported that Tria could cut the growth estimate to 1.0%. On the other hand, Il Messaggero said he could cut the forecast to 1.2%. According to European Commission’s own projections, Italy’s growth would be at 1.2% in 2019. Also Tria might also look at automatic mechanism to cut public expenses to keep deficit under the 2.4% cap.

                      Sterling gaps down as UK PM May cancels emergency cabinet meeting on Brexit

                        By
                        ActionForex.com
                        -

                        Sterling gaps down the week and stays the weakest one as it’s getting more unlikely for a Brexit deal within November. There was originally a planned emergency cabinet meeting today to approve a Brexit deal. But UK Prime Minister Theresa May dropped the plan due to resistance within her own cabinet. And it’s unlikely for May to come up with something by Tuesday’s regular meeting to secure enough support.

                        Irish backstop remains the sticky point. But now, it’s over the right for UK to unilaterally exit the backstop. EU and Ireland have been explicit that UK cannot do that. On the other hand, it’s unacceptable for some Tories that UK would have to be locked into the customs arrangement of the backstop forever.

                        Additionally, May is facing more rebellion even within the remain camp of the Tories. It’s rumored that four more pro-Europe ministers are on the brink of resignation, following ex-transport minister Jo Johnson’s departure last week.

                        European update: Dollar struggles to extend gain, Sterling weakest after GDP

                          By
                          ActionForex.com
                          -

                          Dollar tries to extend post FOMC rally today but there is little success so far. Firstly, the greenback is overshadowed by Yen and Swiss Franc. Yen is clearly lifted by risk aversion. Meanwhile, Swiss Franc trades higher on some mild weakness in emerging market currencies like Rand and Lira. Secondly, there is no technical breakthrough in Dollar pairs today. USD/HF is limited below 1.0094 resistance. EUR/USD is held well above 1.1300 key support. And even GBP/USD and AUD/USD are held well above 1.2951 and 0.7182 minor support levels respectively.

                          Sterling is trading as the weakest one even though Q3 GDP grew 0.6% as expected. But September’s monthly GDP miss raises some doubt over the outlook ahead. And there is never-ending Brexit negotiation, without any progress on Irish border backstop. Canadian Dollar follows as the second weakest, and the Australian Dollar.

                          In European markets, all major indices are down at the time of writing.

                          • FTSE is down -0.86%
                          • DAX is down -0.73%
                          • CAC is down -1.01%
                          • German 10 year yield is down -0.0271 at 0.433
                          • Italian 10 year yield is up 0.030 at 3.432… spread is pressing 300 again

                          Asian indices also closed broadly down

                          • Nikkei dropped -1.05% to 22250.25
                          • Hong Kong HSI dropped -2.39% to 25601.92
                          • Shanghai SSE dropped -1.39% to 2598.87
                          • Singapore Strait Times dropped -0.49% to 3077.97

                          Is SSE’s corrective rebound from 2449.19 completed ahead of 55 day EMA? Probably.

                          Italy Tria to keep the main pillars of budget, EU Dombrovskis said assumptions overly optimistic

                            By
                            ActionForex.com
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                            Italy Economy Minister Giovanni Tria said today that the coalition government is “busy drafting the answer to the European Commission with regards to the most contentious points of the budget.” Italy is requested to present a new or revised draft budget plan to the Commission by November 13. Despite the the requests, Tria told the parliament today that they will confirm the budget plan’s “Main pillar”. Tria reiterated the commitment to cap 2019 budget deficit at 2.4% of GDP. But based on the Commission’s projection released yesterday, Italy’s budget deficit would hit 2.9%.

                            European Commission Vice President Valdis Dombrovskis blasted Italy’s projections were based on “overly optimistic assumptions.” He added, “Basically the assumption is that if they … increase public spending, it will stimulate the economy and thus will help to reduce budget deficit. We see that this is actually not materializing.”

                            UK Hammond: Q3 GDP proof of the economy’s underlying strength

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                              ActionForex.com
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                              UK Chancellor of Exchequer Philip Hammond hails today’s GDP release with his tweet.

                              “Our economy grew 0.6% between July and September – proof of its underlying strength. That’s 8 straight years of economic growth, 3.3 million more people in jobs and wages growing at their fastest pace in almost a decade.”

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                              UK Q3 GDP growth fastest since 2016, but September weakness clouds

                                By
                                ActionForex.com
                                -

                                UK Q3 GDP growth accelerated to 0.6% qoq, matched market expectations. That’s also the fastest rate since Q4 2016.

                                Head of National Accounts Rob Kent-Smith noted that “The economy saw a strong summer, although longer-term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall-back in domestic car purchases. However, car manufacture for export grew across the quarter, boosting factory output. Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

                                However, it should be noted that the rolling three month growth rate slowed from 0.7% in both May-Jul and Jun-Aug periods. This is in line with the above comment that there were some weakness in September. Indeed, monthly GDP growth in September was at 0.0% mom, missed expectation of 0.1% mom.

                                Full GDP release here.

                                Also released from UK

                                • Trade deficit narrowed to GBP -9.7B in September versus expectation of GBP -11.4B.
                                • Industrial production rose 0.0% mom, 0.0% yoy in September versus expectation of 0.1% mom, 0.5% yoy.
                                • Manufacturing production rose 0.2% mom, 0.5% yoy versus expectation of 0.1% mom 0.4% yoy.
                                • Construction output rose 1.7% mom in September versus expectation of 0.2% mom.

                                Overall, Sterling turns a bit weaker after the batch of data release.

                                US treasury yields jump after FOMC, Dollar lifted

                                  By
                                  ActionForex.com
                                  -

                                  US treasury yield closed higher overnight after FOMC statement. The decision to stand pat was widely expected. One surprise was probably the lack of reference to the stock market crash in October. Fed policymakers appear to be not bothered by it at all. Five-year yield closed up 0.029 at 3.090. 10-year yield rose 0.021 to 3.234. 30-year yield, though, was just up 0.002 at 3.427. Treasury yields could now be resuming up trend and might help Dollar regain momentum.

                                  Technically, five-year yield breached 3.092 resistance to 3.095 before closing at 3.090. The development suggests that recent medium term up trend is likely resuming. The strong support by 55 day EMA is a bullish sign. FVX should be heading to 61.8% projection of 1.618 to 2.941 from 2.692 at 3.509 next.

                                  10-year yield lags behind a little as it’s limited below 3.248 resistance so far. But based on current momentum, and the strong support from 55 day EMA too, TNX should take out 3.248 to resume the up trend soon, maybe today, maybe next week. Next target is 61.8% projection of 2.034 to 3.115 from 2.808 at 3.476.

                                  Meanwhile, 30-year yield has actually taken out equivalent resistance last week already. And prior retreat from 3.424 was held well above 55 day EMA, indicating even more bullishness. TYX is also expected to extend recent up trend to 61.8% projection of 2.651 to 3.247 from 2.963 at 3.559.

                                  RBA paints better outlook, but still nowhere near rate hike

                                    By
                                    ActionForex.com
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                                    Despite painting a slightly more upbeat picture on economic outlook in the quarterly monetary statement, RBA maintained the stance that it’s no where near a move interest rate. 2018 year-average GDP growth projection was raised slightly from 3.25% to 3.50%. 2019 GDP growth projection was kept unchanged at 3.25%. Meanwhile, 2020 year-average GDP growth projection was raised slightly from 3.00% to 3.25% too. Unemployment rate is forecast to drop to 5.00% by end of 2018, stay there through 2019 and then drop further to 4.75% in by June 2020.

                                    Headline inflation by December 2018 was raised from 1.75% to 2.00%, indicating that the temporary drag was less severe than expected. CPI would then climb further to 2.25% by December 2019 and stay there still December 2020, unrevised. Core inflation is projected to be at 1.75% by the end of 2018. Core CPI would then rise to 2.25% by December 2019, revised up from 2.00%. For December 2020, core CPI is projected to stay at 2.25%, unrevised.

                                    RBA pointed out that “household income remains a key uncertainty around this forecast, especially in the context of high household debt and a slowing housing market.” It added further that the uncertainty is on “outlook for household income growth” and “how households may respond to significant housing price declines”.

                                    But after all, RBA maintained that “given the expected gradual nature of that progress,” if reducing unemployment and improving inflation, “the Board does not see a strong case to adjust the cash rate in the near term.”

                                    Fed left federal funds rate unchanged at 2.00-2.25% as widely expected. Full statement

                                      By
                                      ActionForex.com
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                                      Fed left federal funds rate unchanged at 2.00-2.25% as widely expected. Full statement below.

                                      Federal Reserve Issues FOMC Statement

                                      Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

                                      Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

                                      In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.

                                      In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

                                      Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.

                                      Today’s top mover: AUD/JPY completed double bottom, medium term trend in bullish reversal

                                        By
                                        ActionForex.com
                                        -

                                        AUD/JPY is so far the biggest gainer today, up 32 pips or 0.39% at the time of writing.

                                        The cross experience quite significant technical development this week. The break of 82.50 resistance completed a double bottom reversal pattern (78.67, 78.65). Bullish convergence condition is seen in daily MACD. And it drew support from 61.8% retracement of 72.39 to 90.29 at 79.22. Adding all together, the down trend from 90.29 should have completed at 78.56. The structure suggests fall from 90.29 to 78.56 is a corrective move.

                                        Now, near term outlook will remain bullish as long as 81.94 support holds. Sustained break of 38.2% retracement of 90.29 to 78.56 at 83.04 will have 55 week EMA firmly taken out too. In that case, further rally should be seen to 61.8% retracement at 85.80 and above. From a longer term perspective, such development would also argue that rise from 72.39 is resuming and raise the chance of breakthrough through 90.29 in medium term.

                                        Italy PM Conte: European Commission has no ground to question our forecasts, we’re not a problem to EU

                                          By
                                          ActionForex.com
                                          -

                                          Italian Prime Minister Giuseppe Conte issued a formal statement in response to European Commission’s new forecasts published today.

                                          Conte criticized that the 2019 growth forecasts for Italy “underestimate the positive impact of our economic maneuver and our structural reforms.” He emphasized that with the government’s estimate, growth will increase while debt and deficit will decrease. And there is “no grounds for questioning the validity and sustainability of our forecasts.”

                                          He also said “Italy is not at all a problem for the Eurozone and European Union, but rather will contribute to the growth of the whole continent.” And, the structural reforms will “give greater impetus to the growth compared to the EU Commission.”

                                          Conte’s full statement in Italian here.

                                          As a reminder, in EU’s warning letter dated October 10, European commission has already criticized that “the macroeconomic forecast underlying Italy’s budgetary plans has not been endorsed by the Parliamentary Budget Office (PBO), Italy’s independent fiscal monitoring institution. At first sight, this appears not to respect the explicit provision of Regulation 473/2013 (Article 4(4)) calling for the macroeconomic forecast to be produced or endorsed by an independent body.”

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