Market Drivers November 13, 2017
- Cable drops below 1.3100
- Dollar weaker against the yen
- Nikkei -1.32% DAX -0.14%
- Oil $56/bbl
- Gold $1277/oz.
Europe and Asia
EUR: GE WPI 3.0% vs. 3.4%
North America
No data
Cable was the clear loser at the start of week's trade as it tumbled from the get go falling below the 1.3100 figure on concerns over the breakdown in Brexit talks. Reams of negative news over the weekend soured sentiment towards sterling, first through a story that PM May was facing an uprising in her own party with 40 MPs ready to call for her ouster. In addition, the EU negotiator for Brexit Michel Barnier stated that the EU was preparing itself for the possibility of the collapse of the talks.
There is no doubt that Ms. May's government is in disarray and that she faces enemies on many fronts, but it's doubtful that Tories would opt out to topple her and open the possibility of a leadership run by Boris Johnson who is seen as a hardline Brexit believer that would almost certainly scuttle negotiations with EU. Meanwhile, it will be interesting to see what type of toll the political turmoil is taking on the UK economy. This week the market will get a slew of UK data including CPI, labor numbers and Retail Sales. Last night, VISA noted that UK consumers cut their purchases by the biggest amount in 4 months suggesting that weaker housing values, high inflation, tepid wages and Brexit woes are all starting to impact final demand.
For now, cable held bid ahead of the 1.,3050 level, but any weakness in data will surely prompt a run towards the key 1.3000 level later this week and could give way to steep selloff towards the 1.2800 mark. Meanwhile, the dollar remained surprisingly weak with USD/JPY trading near session lows of 113.35 by mid morning London dealing. Although the market anticipates a 100% of rate hike in December, going further out the curve to 2018 the expectations remain much more muted. Furthermore, the high hopes for tax reform have faded and markets now appear to have resigned to the fact the legislation will be modest or non-existent failing to provide the boost to the US economy that dollar bulls were looking for.
Therefore, any further erosion of investor enthusiasm could trigger a sharp selloff in equity markets which have been grossly overbought for months and any correction in equities could send USD/JPY lower on risk aversion flows. For now, the 113.00 looks vulnerable to a test especially if US equities see some profit taking at the start of the week.