Market Drivers November 20, 2018
Europe and Asia
No Data
North America
Building Permits/Housing starts 8:30
Another night of grinding seesaw action in FX tonight, with cable, as usual, seeing the most volatility.
The situation surrounding the Theresa May’s Brexit deal remains in a flux as she fights battles on all fronts. She is still under threat of triggering a no-confidence vote from a rebellion in her own ranks, she will not be able to lobby EU members at the summit this Sunday and the prospect of passage in Parliament remains remote. Nevertheless, cable remained bid in London dealing holding above the 1.2850 level as markets continue to bet on some sort of deal in the end.
One other factor that was helping cable was the relatively non-committal testimony of BOE chief Mark Carney who did not rule out the prospect of rate hikes in a post hard Brexit scenario. The BOE Governor tried to remain as neutral as possible refusing to speculate on the prospects of a deal getting done, but did make it clear that the central bank would defend cable in the event a serious selloff in the currency.
In Europe, the euro was under slight pressure as the spread between Italian and German bonds widened to 333 bps. For now the risk of a credit crunch remains under control, but market consensus is that if the spread widens towards 400 bps the threat to Italian banks could become very serious and the market is sure to act way before that point is reached and while the threat of insolvency remains at bay, the German/Italian bond spread may become the key driver of trade into the end of the year, much like was during the PIIGS crisis of 2012.
In North America only housing data on the docket today, but it could be an important signal as housing starts tend to be one of the earliest forecasters of US economic slowdown and that indicator has been trending down for months. If the decline is worse than expected USD/JPY could probe 112.00 figure as the day proceeds.