Traders seem to be deeply uncertain as to how to view Brexit developments. A deal may have been secured between the UK and the EU, but Theresa May’s cabinet has significant reservations over the deal. Collective responsibility has meant that cabinet as a whole has given the deal the thumbs up, but there are many hurdles yet to be overcome. Interestingly, the reports out of the EU would suggest that an EU summit likely now on 25th November should not be too restrictive. However will Mrs May face a vote of no confidence? Also, if it even gets to that stage, there will be the week long debate in Parliament and subsequent vote on the deal which is the biggest stumbling block. The maths just do not seem to add up for Mrs May to get this through, at this stage. This deep uncertainty is why sterling has not been shooting higher, however, if this soft form of Brexit gets past UK Parliament then a decent sized rebound can be expected. For now though, Mrs May is facing her first resignation from her cabinet this morning and this is hitting sterling. Away from Brexit, there has been an interesting move against the dollar in the past day. With core US CPI coming in lower than expected, it would seem that inflation is still the big question mark over the Fed’s tightening cycle. Subsequently, Treasury yields have dropped back and we see yield differentials turning negative for the dollar for the time being. This has driven a euro rally, even though the ongoing brinkmanship of the Italian government remains a concern. Overnight there has also been a letter sent by the Chinese government to the US in response to US demands on trade. Although the contents of the letter have not yet been revealed, anything that helps to smooth the process towards an agreement will be seen as risk positive but also add to this potential dollar correction.
Wall Street closed lower again yesterday with the S&P 500 -0.8% at 2701 but with futures showing a degree of support, trading +0.2% higher, there has been a mixed to positive Asian session (Nikkei +0.2%, Shanghai Composite +1.3%). European markets are also mildly positive into the early session. In forex, there is a dollar negative theme throughout the majors this morning, with the euro still higher and the Australian dollar gaining after a positive set of employment numbers. Sterling has slipped back from earlier gains as the first minister since that cabinet meeting (a junior Northern Ireland minister) has resigned, could it be the first of several? In commodities, this dollar correction is helping gold and silver higher, whilst it is interesting to see oil again supported after yesterday breaking the precipitous run of losses.
The consumer is in focus today with retail numbers for both the UK and US on the economic calendar. The UK Retail Sales (ex-fuel) are at 1330GMT with growth of +0.2% expected in the month of October which would mean year on year sales improving to +3.3% from +3.2% in September. There is a wave of US data in the early afternoon, with US Retail Sales at 1330GMT being the main focus. Consensus expects ex-autos sales to improve by +0.5% on the month after a monthly decline of -0.1% in September. There is also a couple of Fed sentiment gauges, with the New York Fed Manufacturing (Empire State) at 1330GMT which is expected to slip a touch to +20.0 from +21.1 which would still be very strong, whilst the Philly Fed Business Index at 1330GMT is also expected to dip back to a still very strong +20.0 (from +22.2). The US Weekly Jobless Claims at 1330GMT are expected to show claims still around record lows at 212,000 (form 214,000 last week). The EIA Oil Inventories are a day delayed this week and at 1600GMT with the