Earlier in the Day:
There were no material stats released through the Asian session this morning, leaving the markets to consider China’s Premier Xi Jinping’s opening speech at China’s National Party Congress.
With the U.S administration ruffling global feathers, a shift in foreign policy and sentiment towards relations with the U.S is a possible outcome to the this week’s gathering, with China likely to be looking to make further inroads into being the global leader, Trump certainly giving Xi Jinping a relishing opportunity to put China ahead of the pack.
Following the small gains in the U.S equity markets on Tuesday, amongst the Asian majors, the ASX200, the Nikkei and Heng Seng were flat at the time of writing, while CSI300 continued to move forward, despite traditionally being under pressure going into the twice in a decade assembly, though there could be pressure should the head of the PBoC call for a focus on pegging back ballooning debt levels across Chinese companies.
While there will be concerns over what’s to come for China’s equity markets this week, China’s market regulators have put in measures to prevent any unnecessary market volatility during the National Party Congress.
Looking across to the Kiwi Dollar and ongoing discussions between NZ First, the National Party and the opposition and the Greens, little news has emerged on which way the NZ First board and party leader Peters are likely to go leaving the Kiwi Dollar under pressure, down 0.22% at $0.7155 at the time of writing.
Following a relatively dovish set of RBA meeting minutes on Tuesday, the Aussie Dollar managed to stand its ground, supported by the risk on sentiment and yield differentials driving carry trades in favour of the Aussie Dollar, with the U.S Dollar pulling back on the continued speculation over who will take the top spot at the FED.
At the time of writing, the Aussie Dollar was flat at $0.7845, while Premier Xi’s opening speech at China’s National Party Congress eased appetite for the Yen, which was down 0.10% at ¥112.31 against the Dollar.
The Day Ahead:
Following BoE Governor’s failings to provide a more assertive outlook on BoE monetary policy in his testimony to the House of Commons Treasury Committee on Tuesday, the Pound remains under pressure despite the annual rate of inflation ticking up to 3% in September.
There’s been plenty of debate on whether the BoE will make a move next month and the more dovish side of the camp suggest that softer wage growth may actually have pegged back inflationary pressures that could give the BoE some breathing room.
This morning’s average earnings and claimant count numbers will provide the markets with some further direction on the BoE’s likely moves in the coming months, with Carney noting that inflation was likely to move higher than September’s 3% by the end of the year, with the markets having priced in an 80% chance of a November move.
At the time of writing, the Pound down 0.07% at $1.3181, with noise over Brexit another consideration ahead of tomorrow’s EU Brexit Summit
Across the Channel, the EUR has been under the cosh this week as geo-political uncertainty continues to weigh on the EUR, with Spain seemingly torn following Catalan’s independence referendum.
Till now Catalan President Puigdemont has been silent on whether independence has been declared, with the Spanish government having made it clear on its position in recognizing the referendum.
Hopes of any dialogue between the Spanish and Catalan governments seems to be dwindling by the day following the arrest of two of Catalan’s separatist leaders on Tuesday, the two facing possible charges of sedition. To make matters worse for those in search of independence, Spain’s constitutional court unanimously ruled that the Catalan referendum had in fact broken Spanish constitutional law, upholding the court’s previous ruling that had called the referendum illegal.
Catalan President Puigdemont has until tomorrow to clarify the issue of independence and, following yesterday’s arrests, Puigdemont is likely to be under even greater pressure from Catalan hardliners to push for independence.
While the uncertainty is considered less of a Eurozone issue and more of an internal issue for the Spanish government, there had been concerns of an impact to the Eurozone’s 4th largest economy, which were justified on Tuesday as the Spanish government revised its growth forecast for 2018 from 2.6% to 2.3%, attributing the downward revision to the current uncertainty over Catalan’s calls for independence, Catalonia being one of Spain’s key economic regions.
The EUR was down 0.03% at $1.1762 at the time of writing. With no material stats scheduled for release through the day, direction will be hinged on noise from Spain and any comments from ECB president Draghi, who is scheduled to speak later this morning.
Across the Pond, debate over Yellen’s successor at the FED has been a key driver for the Dollar in recent days, with gains in the Dollar easing following a shift in sentiment late on Tuesday ahead of Yellen’s meeting with Trump tomorrow.
For the Dollar bulls, the good news was the pickup in industrial production in September, which came despite Hurricanes Harvey and Irma and with FOMC members Kaplan and Dudley scheduled to speak today, there could be more gains should both brush aside the continuingly soft inflationary pressures.
On the data front, stats are limited to September housing data and the release of the Beige Book, which could test the Dollar should Kaplan or Dudley fail to take a hawkish stance on the U.S economy and monetary policy.
At the time of writing, the Dollar Spot Index was up 0.06% at 93.545.