Daily Brief

Daily Brief

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Mostly calm

Spike

There was great excitement on Wednesday morning about a story that the EU was ready to consider a time-limited Irish Backstop. Sterling popped higher but within 90 minutes it was back where it started when it became clear that the idea was a non-starter.

Investors fancied that, if the withdrawal agreement were to include an option to revoke the backstop subject to the approval of the DUP and Sinn Fein, a deal might be achievable. Cable spiked nearly a cent higher. When it became clear that neither Sinn Fein nor DUP were in favour of the proposal, sterling fell all the way back. Investors must have realised that the idea of a time-limited backstop had been floated and debunked more than once in the last couple of weeks but they could not resist the temptation to trade the story.

With no UK news or data - other than the Financial Policy Committee minutes - to go on the pound settled back into its previous range. It is more or less unchanged on the day against the North American and antipodean dollars, the Scandinavian crowns and the euro.

Trade

America's trade talks with China have much in common with Brexit: Stories of potential success and possible failure follow one another with the passing of every week but nothing actually happens. There was another one of those stories overnight, which may or may not amount to anything.

On this occasion the suggestion was that the States could enter into a "currency pact" with China as part of a partial trade agreement. It did not do much for the US dollar but was positive for commodity-oriented currencies, rescuing the Aussie and the Kiwi from what would have otherwise been a losing day and sending the Japanese yen to the back of the field.

Wednesday's second-division economic data were uninspiring. Minutes of last month's FOMC meeting revealed nothing new and when chairman Jay Powell attended a "Fed Listens" event he did mostly that.

GDP

The UK production and gross domestic product figures for August come out today, surrounded by a rash of inflation data. Friday's highlight will be the Canadian jobs numbers.

It is arguable that the Brexit countdown is of much greater importance to sterling than the statistics for what happened two months ago. However, the pound would not be immune if the data show the economy is already struggling. Manufacturing and industrial production and GDP are all forecast to be just about flat on the month.

Norway has already announced that inflation was a touch lower at 1.5% in September. Sweden is pencilled in at 1.3%, the United States at 1.8%, Germany (tomorrow) at 0.9% and Spain at 0.1%. Unemployment in Canada is forecast to be unchanged at 5.7% after the monthly addition of 10k jobs. Analysts reckon the provisional Michigan index of consumer sentiment will be a point lower for October.

GBP: Limited backstop story refuted

GBP: Limited backstop story refuted

USD: Talk of currency pact with China

USD: Talk of currency pact with China

AUD: Aussie and Kiwi helped by currency pact story

AUD: Aussie and Kiwi helped by currency pact story

CAD: Jobs data on Friday

CAD: Jobs data on Friday

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