Daily Brief

Daily Brief

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Pause for thought

Could be worse

Investors rethought their initially negative reaction to the US midterm election result on Wednesday. The US dollar's retreat came to a halt mid-morning and it retraced some of the lost ground. The general view seemed to be that a split Congress was a better result than a wholly Democrat one.

Equity markets had already come to that conclusion, and they mostly continued higher.  There might no longer be any more blatant stimulus in the pipeline but neither would the newly-constituted Congress be in a position to reverse the measures - tax cuts in particular - that are already in place..  

There were no meaningful US economic data to shade the debate and the president said nothing to make investors worry.  He did sack his attorney general and he withdrew the White House pass of a journalist who asked difficult questions but investors saw that as just another day at the office.  The dollar ended up within a quarter of a cent of Wednesday morning's positions against the euro, the Swiss franc, the Canadian dollar and the British pound.

Risk-on

The three currencies that moved higher against sterling all had a commodity association. South Africa's rand led the way, as it has in three of the last five days, and the antipodean dollars were ahead by two thirds of a cent.  The Japanese yen brought up the rear, down by 0.5% on the day.

The risk-on sentiment helped sterling maintain its relatively elevated position even though the Brexit-deal news flow owed more to hearsay than evidence.  Investors rather liked the idea that the prime minister has "invited" her ministers to read the draft deal, the implication being that they will not have the opportunity to rewrite it.

This morning's monetary policy statement from the Reserve Bank of New Zealand held no surprises and did not affect the Kiwi. The bank "expect[s] to keep the OCR at [1.75%] through 2019 and into 2020".  

Fed to stick

America's Federal Open Market Committee is likely to keep its target range for the funds rate at 2% -2.25% today. The wording of the statement will be scrutinised closely for hints at a rate hike next month. Tomorrow brings the first estimate of Britain's gross domestic product in the third quarter.

Investors assume that no-change is a done deal for the Fed this evening.  They will be more interested in the bank's outlook for December and 2019.  The other central bank event today is the European Central Bank's Economic Bulletin, which includes the ECB's growth forecasts. There are no important ecostats on today's agenda.

Inflation numbers from China and Norway on Friday morning will be followed by the first stab at third quarter UK GDP. Analysts are looking for quarterly growth of 0.6%. Data for the balance of trade and manufacturing and industrial production come out at the same time. The Reserve Bank of Australia will publish its monetary policy statement tonight.

USD steadies after early losses

USD steadies after early losses

GBP holds up despite lack of concrete Brexit news

GBP holds up despite lack of concrete Brexit news

ZAR leads commodity currencies higher

ZAR leads commodity currencies higher

JPY left behind as risk-on mood prevails

JPY left behind as risk-on mood prevails

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