Q4 is opening up with a flurry of themes. The Pound is back in favour after some kind of of progress on Brexit talks. China will come back from holidays this week and the market will be watching their reaction to the USD strength and US trade offensive. On top of that, we have higher US yields which will be influenced by Fedspeak this week and US CPI. “Quitaly” is back in the press and the US earnings season starts on Friday.
Remember that the US and Canada are away tomorrow (Monday).
Themes for the week:
Brexit is in focus with news on Friday that a deal is close. This Wednesday Barnier is due to present to the EU’s executive European Commission a first draft of the bloc’s proposal for close trade ties with Britain after Brexit. Over the weekend EU President Juncker told an Austrian newspaper that a Brexit deal was close and if it doesn’t get agreed to this month, it will be done so in November. This should enhance the mood on the Pound.
China cut its RRR by another 100 BPs as it seeks to spark growth and help sentiment that has been damaged by the US/China trade war. Traders will be focused on the USD/CNY fixing, and watch for any move above 7.00 which is the psychological line in the sand which would put even morel pressure on emerging market currencies and create more EM stress generally. This, in turn, could put pressure on AUD which is a proxy for EM sentiment.
Fedspeak will be watched closely and will possibly influence US yields and USD.
US earnings season kicks off this week with the main focus on JP Morgan, Citigroup and Wells Fargo – all reporting on Friday. Expectations for the current reporting season are high so it’s easy to disappoint.
Italy is back in focus with ongoing revisions to it’s 2019 budget. 2.4% deficit just wasn’t acceptable by Brussels but Italy must present a budget to Brussels on Oct. 15 so the pressure is on. Concerns over Italy’s spending plans and what they mean for its position within the EU should dominate bond markets this week since Deputy PM Salvini continues his aggressive posture vs. EU.
Data in the week ahead:
- UK GDP
- US CPI
On the Radar:
GBP is a natural candidate (long) vs. Aud, Nzd & Euro. Aud & Nzd weakness might also be influential in the event of risk-off (if China reacts negatively to the latest developments). Thre may also be further weakness in EU stocks.
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