In a market wrap, analysts at Westpac explained that Sterling bounced as UK and EU negotiators announced agreement on Brexit details, but worries over UK political resistance capped its gains. Crude oil prices fell 7%. The analysts were also explaining that AUD/USD consolidated small gains around 0.7200. A huge data calendar today includes Australia Q3 wages and Nov consumer sentiment, China Oct IP and retail sales, Japan Q3 GDP and Oct CPI for both US and UK.
Key Quotes:
“UK/EU negotiators announced that they had managed to agree on the wording of a proposal for the Irish border and customs union/backstop and so a broader exit document. PM May is now calling in her individual ministers to brief them on the documents prior to a full Cabinet meeting called for Wednesday morning in order to then put forward the proposal formally for agreement between the UK government and the EU and then for it, if agreed, to then be put before the UK Parliament. The key issue, if agreed at EU level, will be whether the UK Parliament can pass any agreement and whether May can hold her party and minority government together.
The headlines on the agreement helped GBP/USD extend its gains to almost 2 cents over the day, with highs just short of 1.3050. But critics such as Boris Johnson were quickly on the wires calling for the deal to be rejected. GBP slipped back to 1.2950.
On the data front, UK September employment showed a lift in unemployment from 4.0% to 4.1% but at the same time a 23k rise in employment. More pertinently within an overall solid report, average weekly wages, ex-bonus, lifted again from 3.1%y/y to 3.2%y/y.
EUR/USD rose steadily to highs around 1.1290, following the pound, then trimmed gains to 1.1260. ZEW November surveys of investor sentiment were weak. German conditions fell to 58.2 (prior 70.1) and expectations remained low at -24.1. Eurozone expectations declined further to -22.0 (lowest level since Q3 2012).
AUD/USD had bounced about 40 pips to 0.7210 in Sydney trade, backed by optimistic headlines about the US and China meeting to discuss a trade deal, plus a rally in the Chinese yuan which kept it away from the much-discussed 7 level versus USD. The Aussie then traded near 0.7200 in London and NY, largely sidelined. NZD was a bit more impressive, up 0.6% over the day at 0.6750. This saw AUD/NZD slip -0.2% to 1.0665.
USD/JPY was net unchanged over the day, around 113.80, following mixed signals from equities and US yields. USD/CAD kicked up to 1.3260, CAD underperforming the G10 as the month-long reversal in oil prices picked up steam. The -7.1% on WTI was its largest daily drop since 2015.
US NFIB October small business survey remained firm, at 107.4 (prior 107.9). The accompanying write up noted that “Small business optimism continued its two-year streak of record highs”.
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