HomeContributorsFundamental AnalysisPound Shrugs Off Stronger Retail Sales As Brexit Talks Resume

Pound Shrugs Off Stronger Retail Sales As Brexit Talks Resume

Here are the latest developments in global markets:

FOREX: Investors continued to look for riskier assets early in the European session on hopes that US-Sino trade tensions could deescalate following Beijing’s willingness to hold trade talks with the US later in August. Dollar/yen inched up to 110.90 (+0.15%), while the dollar index which gauges the greenback’s strength against six major currencies turned slightly lower to 96.59 (-0.11%) as trade hopes shifted some demand towards the euro. Still, trade stats out of the Eurozone showed that the bloc’s trade surplus with the US widened in June, a signal that Trump might keep adding pressure on his European counterparts. Euro/dollar strengthened by 0.25% on the day to trade at 1.1371 despite Washington refusing to remove its steel tariffs on Turkey, thereby reducing the chances for Ankara to release the American pastor. Pound/dollar failed to gain on upbeat British retail sales readings. While it stretched up to touch a high of 1.2731 after the data showed that retail sales expanded by 3.5% y/y in July compared to 3.0% expected and the 2.9% seen in June, the pair soon eased to 1.2699, near today’s opening price. In antipodean currencies, aussie/dollar and kiwi/dollar were in bullish mode, with the former changing hands higher at 0.7272 (+0.48%) and the latter crawling up to 0.6584 (+0.34%). Dollar/loonie was weaker at 1.3120 (-0.15%). The Turkish lira continued to pare loses against the greenback, sending dollar/lira down to 5.79 (-3.08%).

STOCKS: European stocks opened higher on Thursday except for the Italian FTSE MIB, which was down by 1.64% at 16-month lows at 0850 GMT, posting losses it missed on Wednesday as the Italian stock market was closed for the Ferragosto holiday. A 24% drop in Atlantia’s Spa stocks, a large Italian motorway group, weighed on the index after the deadly collapse of Genoa’s bridge on Wednesday. Meanwhile, the pan-European STOXX 600 and the blue-chip Euro STOXX 50 were up by 0.23% and 0.10% respectively, gaining on news that China will hold trade talks with the US later this month. The German DAX 30 climbed by 0.35%, the French CAC 40 increased by 0.43%, while the Spanish IBEX 35 rose by 0.38%. UK’s FTSE 100 was the best performer among European major indices, advancing by 0.50%. In the US, futures tracking S&P 500, Dow Jones and Nasdaq 100 were flashing green, pointing to a positive open later today.

COMMODITIES: Crude oil prices were mixed as investors worried about the sharp rise in US crude oil inventories as indicated by the EIA weekly report on Wednesday, but still stood somewhat optimistic that the US-Sino trade dispute could be resolved, or at least subside a little. Ongoing tensions between the US and Turkey, which put emerging markets under pressure earlier this week, were also a source of uncertainty. WTI crude and Brent were last seen at $64.97 (-0.06%) and at $70.87 (+0.16%) per barrel respectively. In precious metals, gold continued its rebound off the 20-month low of $1160 per ounce reached today, surging by 0.53% to $1180.45.

Day ahead: Brexit talks resume, with trade developments also in the spotlight

The highlight of the remainder of Thursday’s calendar will likely be the resumption of the Brexit negotiations in Brussels, and any potential comments from the relevant officials. Any developments on the trade front or the situation in Turkey will also be closely watched.

After some relatively encouraging UK data releases this week, which despite confirming that the economy remains on a healthy track still failed to lift the British pound, investors’ attention now turns back to Brexit. Markets will look out for any signs of progress in the negotiations, or the lack thereof. Note that the pound has recorded significant losses lately amid speculation that a no-deal Brexit is becoming more likely and hence, the Brexit risk-premium on the currency is probably quite high already. This suggests the risks surrounding the pound from these talks may now be somewhat asymmetrical, and tilted to the upside. Whereas continued lack of progress could keep the currency at current low levels or even trigger some further moderate losses, any hints that the negotiations are set to move forward may come as a positive surprise and thereby, lead to an outsized relief bounce.

Turning to trade, overnight news suggest China will send a delegation to the US in late August to hold another round of negotiations aimed at resolving the trade dispute between them. The headlines supported risk sentiment earlier on Thursday, lifting the euro – which had been hurt by trade woes in recent months – and weighing on the yen as well as on the dollar that have been attracting safe-haven flows lately. Any comments by the two sides that set the stage for what to expect from these talks could well impact risk appetite again. Anything pointing to a negotiated solution becoming more likely could benefit risk-sensitive currencies like the aussie to the detriment of havens like the yen, and vice versa.

The situation in Turkey will also remain on investors’ radars. The lira staged a notable comeback in recent days, aided by some technical adjustments by the central bank. That said, the diplomatic showdown with the US over the release of pastor Brunson remains in full swing, while the broader macroeconomic picture has not improved in a meaningful manner, which suggests risks are still present.

In terms of economic data, housing figures out of the US at 1230 GMT may attract attention. Both building permits and housing starts are forecast to have risen in July. Meanwhile, the Philly Fed business activity index for August, which will be released at the same time, is projected to decline. In Canada, manufacturing sales for June – due out at 1230 GMT as well – are anticipated to have risen again, albeit at a slower pace than previously.

In equities, Walmart and Nvidia will release quarterly earnings on Thursday; the former before the US market open, and the latter after the closing bell.

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