ECB reacting to patchy growth

There are rumours that a few members of the Governing Council of the European Central
Bank agree with Bundesbank President Jens Weidmann that a more definite end to the Asset Purchase Scheme is needed to provide markets with confidence that the Central bank can act proactively.

Today’s release of preliminary Q3 GDP data will show a slight fall month on month, from 0.6% to 0.5% but year on year rise to 2.6% from 2.5% is expected. The data from individual countries is a little less encouraging with France, for example, only growing by 0.5% year on year only marginally stronger than the U.K. which is facing far more severe headwinds.

The Euro found a base, although this may only be temporary, at 1.1570 but faces strong resistance at 1.1680 the previous support level.

Sentiment is a major influence in the FX market and the Euro is suffering from a shift in sentiment as interest rate differentials widen. The inability of the common currency to hold onto gains above 1.2000 has seen a major loss of confidence leading to longer term longs joining short term traders in liquidating positions.

Pound still supported by rate hike expectations

Sterling appears to be pinning its hopes upon a major hawkish shift being experienced by
MPC members despite data and political influences saying otherwise.

Anything other than a “dovish hike” would be a major shock to the market. A “dovish” or
“one off” hike will only be positive if Bank of England Governor Mark Carney is positive in his comments regarding the need for a future hike. Any mention of a reversal of the June ‘16 hike or the potential to cut should Brexit look like producing a no deal outcome will likely see Sterling plummet.

It is hard to imagine any positive influence for the pound coming from Brexit which, for now, appears to have gone “behind closed doors”. The major sticking point of the Brexit negotiations, the “divorce bill” is unlikely to be resolved any time soon and the optimism garnered for Donald Tusk’s comments regarding the consideration of the start of stage two talks in December is evaporating.

Theresa May should be congratulated on managing to stay in power if she has and quelling at least two rebellions. The feeling remains, however, that senior members of her Cabinet are simply waiting for the mood to change before ousting her and commencing a leadership battle which could prove fatal for the Government’s prospects of clinging to power.

Error, group does not exist! Check your syntax! (ID: 4)

Trump Presidency Further Tarnished

Yesterday’s arrest of two senior campaign aids has provided further ammunition to those who feel that Russia exerted influence to ensure the election of Donald Trump as President. Paul Manafort and Rick Gates were arrested on charges of money laundering. There has been no mention of Trump’s involvement, but his status is further tarnished by the implication.

The dollar index which had been rising steadily fell 0.75% from its recent highs in reaction to the news.

A further blow to the dollar came as it was rumoured that Trump favours Jerome Powell to
take over as Chairman of the Federal Reserve. Powell is seen a more dovish in his outlook that the other candidate John Taylor whose rules based approach to monetary policy is less able to react quickly or pre-emptively.

Most of the rise in the dollar index had been in reaction to the weakness of the Euro which
makes up over 50% of its content.  

Elsewhere the Bank of Japan left rates unchanged. This was as expected following the
re-election of Shinzo Abe as Prime Minister since accommodative monetary policy
is the cornerstone of his Abeonomics policy.

Error, group does not exist! Check your syntax! (ID: 3)