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Today, Brexit headlines dominated trading on UK markets, but were also key driver of sentiment on global markets. Evidently, the impact on UK markets was the biggest. Several UK cabinet members resigned this morning, including Brexit Secretary Raab. Markets concluded that Parliamentary approval of the Brexit text had become even more unlikely than before. Political uncertainty in the UK will be very high in the near future. Sterling got hammered. EUR/GBP jumped north of the 0.88 big figure. Still, UK PM May defended the deal in a Parliamentary hearing. At the end, headlines flashed on the screens that leading Brexiteer Rees-Mogg submitted a letter for a leadership challenge, indicating a further weakening of PM May’s position. Sterling touched a new intraday low, awaiting upcoming events. UK interest rate markets for now don’t believe the warning of the BoE’s Carney that the Bank could be forced to raise rates in case of a no-deal Brexit. UK yields are declining sharply, with markets pricing out the chances of a BoE rate hike next year. October UK retails were also reported weak, suggesting the economy might feel ever stronger headwinds from ongoing political uncertainty. However, the release had little additional impact on markets. UK PM has finished the hearing before Parliament. However, it is very well possible that additional political event risk might come to haunt markets. Currently, EUR/GBP is trading in the 0.8830 area. Cable is testing the 1.28 barrier. The august correction low (1.2662) is still at distance, but (political) developments are these days going fast in the UK.

The developments on Brexit also affected global sentiment and triggered a broader risk-off correction after a positive start of European equity markets and US futures. For now, the correction remains orderly and the impact on the dollar and on the euro remains modest. EUR/USD tumbled from the mid 1.13 area to fill bids below 1.1280 this morning, but the pair currently trades back in the 1.13 area. So for now, the fall-out from Brexit on the euro remains modest. To put it otherwise, the dollar gains are maybe a bit disappointing. USD/JPY is also losing ground, but yen gains remain modest as well. USD/JPY is trading in the 113.15 area, holding recent ranges. Aside from Brexit, several US data was printed, including retail sales, Philly Fed and Empire manufacturing confidence. The data was mixed and hardly affected USD sentiment in the wake of Fed’s Powell’s comments overnight.

Global core bonds gain ground today as a deteriorating risk sentiment drove markets today (mainly caused by brexit headlines). Overall, Brexit impact remains muted. German Bunds and US Treasuries edged higher as UK government resignations crushed hopes of the UK-EU brexit agreement. At noon, core bonds temporarily reversed part of their initial gains, but soon resumed the daily uptrend. Italian BTP’s opened higher as well as PM Conte signaled he wants to cooperate with the EU on the budget impasse, but those gains were paired rather quickly on the overall risk-off sentiment. Italian BTP’s currently trade below opening levels. German yield curve edges lower with the belly of the curve outperforming. Changes range from -2.4 bps (30-yr) to -4.2 bps (10-yr). US yield curve shifts in a similar fashion with changes from -2.9 bps (2-yr) and -4.6 bps (10-yr). Worsening risk sentiment widens 10-yr yield spreads over Germany with Greece (+12 bps), Italy (+8 bps) and Spain (+6 bps) underperforming.

News Headlines

Luigi Di Maio, Italian Deputy PM and leader of 5SM, said the government is looking for options to avoid the ‘excessive deficit procedure’ established in the EU’s Stability and Growth Pact. He stressed that he did not want Italians to have to make the sacrifices.

US data were mixed today. Retail sales were close to expectations. Headline sales rose a strong 0.8% in Oct. but core (control group) sales rose only 0.3% (0.5% was expected) and the September figure was downwardly revised from 0.5% M/M to 0.3%M/M. The Empire Manufacturing confidence gauge was stronger than expected (23.3 in Nov from 21.1 in Oct), while the Philadelphia Fed Business Outlook fell to 12.9 from 22.2 in Oct.

After disappointing in September, retail sales advanced by 0.8% m/m in October – well ahead of expectations for a 0.5% gain. The weak September print was revised down further to -0.1% from 0.1% gain reported previously.

Sales at autos and parts dealers and at gasoline stations rose handsomely on the month, increasing by 1.1% and 3.5%, respectively. Sales of building materials also picked up (+1.0%), perhaps capturing rebuilding efforts following recent hurricanes.

Meanwhile, sales at food services and drinking places fell again in October (-0.2%), marking a third consecutive monthly decline after a strong performance in the first half of the year.

Excluding the above volatile categories (gas, autos, building materials, and food services), the so-called 'control group' used in calculating GDP rose more modestly than the headline, advancing by 0.3%. September's gain was also pared back to 0.3% from 0.5% increase initially reported. Delving into the details, most categories rose on the month. Sales at electronics & appliance (+0.7%) and clothing & accessory (+0.5%) stores increased; food and beverage (+0.3%) and sporting goods (+0.5%) stores also did well.

Both bricks-and-mortar and online stores had a good run last month. Sales at general merchandise stores rose by a 0.5%. Online retailers fared much better, with sales up 1.5% on a month, and a whopping 12.6% from a year ago level.

Key Implications

Overall, this was good report, delivering the anticipated rebound in sales and an above consensus headline print. Negative revisions to the prior month's data and the below consensus gain in 'control group' temper the enthusiasm somewhat. The downward revisions to September mean a weaker hand-off to the fourth quarter, and consumer spending is now looking slightly weaker than before, but still respectable at 2.4% in real terms.

Looking ahead, consumer spending is expected to be a solid support to growth in U.S. economy. However, after expanding at a blockbuster 3.9% annualized pace over the last two quarters, we do expect spending to cool at a more moderate 2-2.5% pace, as the impact from tax cuts fades.

Daily Pivots: (S1) 146.46; (P) 147.45; (R1) 148.57; More...

Strong break of 145.99 support suggests that fall from 149.48 has resumed. And rebound from 142.76 has completed ahead of 149.70 resistance. Intraday bias is turned back to the downside for 142.76 support. Break will target key support zone at 139.29 again. On the upside, above 145.99 support turned resistance will turn intraday bias neutral first.

In the bigger picture, as long as 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) holds, up trend from 122.36 (2016 low) would still extend beyond 156.69 high. However, decisive break of 139.29/47 will suggest that such up trend is completed and turn outlook bearish. In that case, next target is 61.8% retracement at 135.43.

Daily Pivots: (S1) 0.8660; (P) 0.8709; (R1) 0.8757; More...

EUR/GBP's strong rebound and break of 0.8773 minor resistance suggests short term bottoming at 0.8655. Intraday bias is turned back to the upside for 0.8939. Break there will indicate completion of whole fall from 0.9098. Further rise should be seen back to this resistance. On the downside, below 0.8773 resistance turn support will turn focus back to 0.8655 instead.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Medium term fall from 0.9305 is possibly in progress and could extend through 0.8620. On the upside, break of 0.8939 resistance is needed to indicate medium term reversal. Otherwise, outlook will remain cautiously bearish even in case of rebound.

Daily Pivots: (S1) 113.28; (P) 113.64; (R1) 114.00; More..

Intraday bias in USD/JPY is neutral for moment. Due to loss of upside momentum as seen in 4 hour MACD, in case of another rise, upside should be limited by 114.54/73 zone to bring reversal. On the downside, break of 112.94 minor support will extend the consolidation pattern from 114.54 with another falling leg back to 111.37. Overall, rise from 104.62 is still in progress and decisive break of 114.73 will confirm resumption.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Daily Pivots: (S1) 1.0034; (P) 1.0069; (R1) 1.0097; More...

Intraday bias in USD/CHF remains neutral as consolidation from 1.0128 continues. Another rally is expected as long as 0.9952 support holds. On the upside, break of 1.0128 would resume larger rise from 0.9186 and target 1.0342 key resistance. However, firm break of 0.9952 will indicate short term topping and bring deeper fall.

In the bigger picture, the pullback from 1.0067 has completed at 0.9541 already. And rise from 0.9186 is likely resuming. Firm break of 1.0067 will pave the way to retest 1.0342 key resistance. We'd be cautious on strong resistance from there to limit upside to bring another medium term fall to extend long term range trading. However, firm break of 0.9848 near term support will dampen this view and bring deeper decline back to 0.9541 support and possibly below.

Daily Pivots: (S1) 1.1266; (P) 1.1306; (R1) 1.1350; More.....

Intraday bias in EUR/USD remains neutral as consolidation continues above 1.1215 temporary top. Upside of recovery should be limited below 1.1499 resistance to bring fall resumption. On the downside, break of 1.1214 will target 1.1186 fibonacci level first. Break will target 61.8% projection of 1.2555 to 1.1300 from 1.1814 at 1.1038 next.

In the bigger picture, down trend from 1.2555 medium term top has just resumed and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 resistance is now needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.

Daily Pivots: (S1) 1.2888; (P) 1.2980; (R1) 1.3081; More...

GBP/USD dives to as low as 1.2750 so far today. The break of 1.2825 suggests resumption of fall from 1.3174. Intraday bias is back on the downside for retesting 1.2661/92 key support zone. Decisive break there will resume larger down trend from 1.4376. On the upside, break of 1.3071 will bring another rebound. But upside should be limited by t 1.3316 fibonacci level. Overall, price actions from 1.2661 are viewed as a consolidation pattern. Down trend from 1.4376 should resume after completion of the consolidation.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Sterling is sold off broadly today as Brexit optimism quickly turned into political turmoil. UK Prime Minister Theresa May appeared to have secured Cabinet support on her Brexit agreement with EU. But in less than 24 hours, four ministers resigned in protest, including the high profile figure in Brexit Minister Dominic Raab. That's not the end of it though.

ERG chair Jacob Rees-Mogg is sending a letter to Sir Graham Brady, chair of the 1922 Committee, requesting a no confidence vote. Rees-Mogg expects 48 letters to come in to trigger the vote, though not necessarily today. And, leadership contest could happen quickly in weeks. That would definitely overlap with the scheduled EU summit for Brexit on November 25. It feels like it's just the start of another stage of problem for the Pound.

Staying in the currency markets, Sterling is in no doubt the weakest one today, followed by Euro and then Dollar. Australian Dollar is the strongest one as supported by strong employment data, as well as hope for progress in US-China trade negotiations. The Aussie is followed by Yen, and then New Zealand Dollar.

Technically, EUR/GBP rebound and break of 0.8773 minor resistance now suggests near term reversal and focus is back on 0.8939 resistance. GBP/JPY's break of 145.99 minor support should confirm rejection by 149.70 resistance earlier, and deeper fall should be seen back to 142.76 support. GBP/USD is also heading back to 1.2692 support. Otherwise, dollar are generally in consolidations, and we'll see how long the consolidations would extend.

Little attention paid to the data released in European and US session

Released from the US, headline retail sales rose 0.8% in October, above expectation of 0.5% mom. Ex-auto sales rose 0.7%, above expectation of 0.5 mom. Import price index rose 0.5% mom in October, much higher than expectation of 0.1% mom. Empire State Manufacturing index rose to 23.3 in November, up from 21.1 and beat expectation of 19.3. Philly Fed Business outlook dropped to 12.9, down from 22.2, below expectation of 20.7. Initial jobless claims rose 2k to 216k in the week ended November 10. Continuing claims rose 46k to to 1.676M in the week ended November 3.

From UK, October retail sales data were rather poor. Including auto and fuel, sales dropped -0.5% mom in October versus expectation of 0.2% mom. Excluding auto and fuel, sales dropped -0.4% mom versus expectation of 0.2% mom. The Pound has enough trouble already. So we'd tend not to blame the selloff on retail sales data. From Eurozone, trade surplus narrowed to EUR 13.4B in September, below expectation of EUR 16.7B.

While the data were important, markets paid little attention.

UK PM May in political turmoil for her Brexit agreement

UK Brexit Secretary Dominic Raab resigns today, just after Prime Minister Theresa May seemed to have got Cabinet support on her Brexit plan. Raab complained that "Above all, I cannot reconcile the terms of the proposed deal with the promises we made to the country in our manifesto at the last election." Raab also warned in his resignation letter "no democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement." And he emphasized that "this is, at its heart, a matter of public trust," and "I cannot support the proposed deal."

Nevertheless, Raab suggested he retained confidence in May as PM later in the day. He told BBC that "I think she needs a Brexit secretary that will pursue the deal that she wants to put to the country with conviction. I don't feel I can do that in good conscience. But I respect her, I hold her in high esteem, I think she should continue, but I do think we need to change course on Brexit."

In addition to Raab, Welfare Minister Esther McVey, junior Northern Ireland Minister Shailesh Vara, junior Brexit Minister Suella Braverman also resigned.

Prime Minister Theresa May responded to the resignations by warning that "The choice is clear: We can choose to leave with no deal, we can risk no Brexit at all, or we can choose to unite and support the best deal that can be negotiated." And she also said "We have been preparing for no-deal and we continue to prepare for no-deal because I recognize that we have a further stage of negotiation with the European council and then that deal when finalised … has to come back to this House."

In his letter to Sir Graham Brady, chair of the 1922 Committee, Chair of the European Research Group (ERG), Jacob Rees-Mogg criticized that "the draft withdrawal agreement presented to parliament today has turned out to be worse than anticipated and fails to meet the promises given to the nation by the prime minister, either on her own account or on behalf of us all in the Conservative party manifesto."

And, "It is of considerable importance that politicians stick to their commitments or do not make such commitments in the first place. Regrettably, this is not the situation, therefore, in accordance with the relevant rules and procedures of the Conservative party and the 1922 committee this is a formal letter of no confidence in the leader of the party, the Rt. Hon. Theresa May."

China made formal concessions to US on trade, but concerns remain

Chinese and Hong Kong stocks surged today on reports that China has sent written responses to the US regarding the concessions it's willing to made. That could pave the way for some sort of agreement during Xi-Trump meeting at the G20 summit on November 30. The act is generally seen as constructive for the trade negotiations.

However, concerns remain as most of China described in the documents were just old wine in a new bottle. They're just recap of what Xi Jinping has announced recently, such case raising the equity caps on foreign investments in some industries. There is so far nothing substantial regarding opening of the markets and removing barriers on trade and investments. Mostly likely too, there wasn't anything regarding the highly criticized dominance of State-Owned Enterprises in the country.

Further more, at this point, Treasury Secretary Steven Mnuchin is the one handling the discussion with China. Even if White House economic advisor Larry Kudlow would be involved, they remain far from the stage of making a trade deal. The work of trade agreements fall into the area of trade representative Robert Lighthizer. And, not until Lighthizer is involved, there would only be ceasefire, but no constructive progress.

Fed Powell: From now on, Fed can and will move at any meeting

Fed Chair Jerome Powell had an hour long exchange with Dallas Fed President Robert Kaplan, titled "Global Perspectives with Jerome H. Powell". Powell reiterated his upbeat comments on the US economy. He said "I'm very happy about the state of the economy now". He also hailed the Fed collectively and said "our policy is part of the reason why our economy is in such a good place right now."

A key take away is his comments regarding the arrangement of having press conference after all eight FOMC meetings during the year, starting next. He said "certainly all meetings are live now, there's no question about it now." And he added, "over time, folks will get used to the idea that we can and will move at any meeting."

On interest rates, Powell acknowledged the need to thing about "how much further to raise rates and the pace at which we will raise rates." And, "the way we will be approaching that is to be looking really carefully at how the markets and the economy and business contacts will be reacting to our policy." He emphasized that "our goals will be to extend the recovery ... and to keep unemployment low and inflation low. So that's how we're going to think about it."

On headwinds, Powell noted slowing growth abroad, waning effect of the administration's tax cuts and spending increases are some that the economy might face. Also, he noted that there are a lot of factors weighing on home building too.

Australia employment jumped 32.8k, with strong growth in full-time jobs

Australia employment rose 32.8k in October, much better than expectation of 20.3k. Full-time employment jumped 42.3k to 8.70M. Part-time jobs dropped -9.5k to 3.97M. Unemployment rate was unchanged at 5.0%, below expectation of 5.1%. Participation rate rose 0.1% to 65.6%. Monthly worked hours in all jobs also rose 0.3%. Released yesterday, wages grew 2.3% in Q3, fastest annual pace in three years. The overall set of employment data released this week is pretty encouraging.

The set of data should be very welcomed by the RBA. However, they kind of just confirmed RBA's outlook, without too much out-performance. Wage growth remains the key for lifting inflation. And there's still much more work to do. Nevertheless, it's a step in the right direction and affirmed that the next move is a hike rather than a cut. But, that leaves RBA with no urgency to move any time soon.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2888; (P) 1.2980; (R1) 1.3081; More...

GBP/USD dives to as low as 1.2750 so far today. The break of 1.2825 suggests resumption of fall from 1.3174. Intraday bias is back on the downside for retesting 1.2661/92 key support zone. Decisive break there will resume larger down trend from 1.4376. On the upside, break of 1.3071 will bring another rebound. But upside should be limited by t 1.3316 fibonacci level. Overall, price actions from 1.2661 are viewed as a consolidation pattern. Down trend from 1.4376 should resume after completion of the consolidation.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Economic Indicators Update

Chair of the European Research Group (ERG), Jacob Rees-Mogg, released his letter to Sir Graham Brady, chair of the 1922 Committee, requesting a no confidence vote in Prime Minister Theresa May.

Full text of the letter:

A few weeks ago, in a conversation with the chief whip I expressed my concern that the prime minister, Mrs. Theresa May, was losing the confidence of Conservative members of parliament and that it would be in the interest of the party and the country if she were to stand aside. I have wanted to avoid the disagreeable nature of a formal vote of no confidence with all the ill will that this risks engendering.

Regrettably, the draft withdrawal agreement presented to parliament today has turned out to be worse than anticipated and fails to meet the promises given to the nation by the prime minister, either on her own account or on behalf of us all in the Conservative party manifesto.

That the Conservative and Unionist party is proposing a protocol which would create a different regulatory environment for an integral part of our country stands in contradistinction to our long-held principles. It is in opposition to the prime minister's clear statements that this was something that no prime minister would ever do and raises questions in relation to Scotland that are open to exploitation by the Scottish National Party.

The 2017 election manifesto said that the United Kingdom would leave the customs union. It did not qualify this statement by saying that we could stay in it via a backstop while annex 2, Article 3 explicitly says that we would have no authority to set our own tariffs. It is also harder to leave this backstop than it is to leave the EU, there is no provision equivalent to article 50 of the Lisbon treaty.

The prime minister also promised an implementation period which was the reason for paying £39bn. As was made clear by a House of Lords report in March 2017 there is no legal obligation to pay anything. This has now become an extended period of negotiation which is a different matter.

The situation as regards the European court of justice appears to have wandered from the clear statement that we are taking back control of our laws. Article 174 makes this clear as does article 89 in conjunction with article 4.

It is of considerable importance that politicians stick to their commitments or do not make such commitments in the first place. Regrettably, this is not the situation, therefore, in accordance with the relevant rules and procedures of the Conservative party and the 1922 committee this is a formal letter of no confidence in the leader of the party, the Rt. Hon. Theresa May.

I am copying this letter to the prime minister and the chief whip and although I understand that it is possible for the correspondence to remain confidential I shall be making it public.