There is a sense of anticipation that has built up across major markets as consolidation has crept in. The major mover right now is sterling, which is like an excitable puppy, trading with significant volatility as it jumps up and down. The EU/UK negotiators have been working hard for several days to get some sort of text ready for the EU Council to consider, and apparently the “foundations” are there. Michel Barnier said last week, “where there’s a will, there’s a way”, so markets are on tenterhooks. However, time is running out for a deal this week and sterling is slipping this morning. Suggestions are that the unionist party in Northern Ireland, the DUP, will not support the deal when it is put to Parliament (probably on Saturday). It is interesting to see that the euro is holding on to its recent positive performance, but it would also suffer should there be an impasse in Brussels/Parliament. Broad risk appetite has been a beneficiary too recently amid the elevated Brexit deal prospects, with yen and broadly US dollar underperformance. However, this could all turn on a sixpence though today. Although Gilt yields and Bund yields have been higher on the Brexit story, Treasury yields have been struggling recently. A worrying decline in US Retail Sales is certainly something that could now play on the minds of Treasuries traders. The US consumer has been doing the heavy lifting with US growth, and if sales start to decline consistently, then this could usher the Fed into more of a dovish cycle.
Wall Street had a bit of a quiet session yesterday, with a mild decline on the S&P 500 by -0.2% to 2990. US futures are again a little cautious today -0.1%. Asian markets were mixed overnight, with both Nikkei and Shanghai Composite almost dead flat. In Europe, there is a slip back for DAX futures (-0.4%), whilst FTSE futures (+0.2%) are being supported by an early decline on sterling. In forex, the GBP decline is the big move, but it is interesting to see AUD stronger after the Australian Unemployment numbers showed the headline rate a shade lower than expected at 5.2%. In commodities, gold and silver are fluctuating around the flat line, whilst oil is stumbling to give back yesterday’s rebound gain.
The economic calendar for the European session is focused on the final of this week’s major UK data. UK Retail Sales (ex-fuel) is at 0930BST and is expected to fall by -0.1% in the month of September (having fallen by -0.3% in August) but this would mean the year on year data would improve to +2.8% (from +2.2% in August). The US data begins with the Philly Fed Business index at 1330BST which is expected to slip back to a still positive +8 in October (from +12 in August). There is also US Building Permits at 1330BST which are expected to drop back to 1.32m in September (from 1.42m in August) and Housing Starts expected to drop back to 1.32 (from 1.36 in August). Weekly Jobless Claims are expected to remain around recent levels, with 215,000 (a shade higher from 210,000 last week). The EIA Oil Inventories are a day delayed this week and are at 1600BST, with crude