Daily Brief

Daily Brief

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Benefit of the doubt

No worries

The last few days have been characterised by investors' refusal to be upset by political events. They were not upset (any more than usual) by the prospect of a no-deal Brexit; they were unperturbed by a downgrade of Italian debt; they were sanguine about the Australian government losing its majority.

On Friday evening Moody's lowered its rating of Italy to Baa3, one step above junk. The move was not unexpected, in view of the heated argument between Rome and Brussels about Italy's 2019 deficit budget and the way the market has shunned government bonds in the last couple of weeks. The downgrade came too late on Friday to affect the euro but there has been no adverse reaction in the Far East this morning and the euro is a dozen ticks higher on the day.

A by-election in Australia, to replace erstwhile prime minister Malcolm Turnbull, delivered an independent to fill his shoes. It means Scott Morrison's coalition has lost its one-seat majority. However, the new MP has said she would not go against the government in a confidence vote so the Aussie is not unduly troubled. It is 0.4% lower against sterling on the day, unchanged against the Swiss franc and US dollar.

Five percent to go

The prime minister reckons 95% of the Brexit withdrawal agreement is settled. Investors were inclined to take her at her word this morning and the pound edged higher against the US dollar. Sterling is an average of 0.2% above Friday's opening levels.

Ireland's internal border presumably constitutes a fair chunk of the missing 5% and investors are not exactly brimming with confidence that that particular circle can easily be squared. There were also raised eyebrows on Thursday when UK retail sales were reported to have fallen by more than expected. Friday's government lending figures were better than expected and went some way to offsetting the disappointing sales numbers.

Investor gave sterling the benefit of the doubt. It is up by half a US cent and half a Swiss cent. Its only losses are to the Northern Scandinavian crowns, amounting to roughly 0.25% each.

Holding pattern

An abbreviated agenda today features Canadian wholesale sales. Whist that statistic seldom gets a mention on the must-not-miss listings, it might have greater importance today in view of Friday's disappointing Canadian data and the Bank of Canada's rate decision coming up on Wednesday.

Canadian retail sales fell 0.1% in August and inflation slowed to 2.2%  from 2.8%. Every one of the components was lower than forecast and their effect was to raise question marks about the BoC's determination to push ahead with the  expected interest rate increase this week. A glance at the front page of the BoC's website suggests that it probably will.

The other ecostat scheduled for today is the Chicago Fed's national activity index. Three Reserve Bank of Australia assistant governors will be speaking tonight at two conferences in Sydney; Sibos (banking operations) and ISDA (swaps and derivatives).  

5% needed for May

5% needed for May

Rome and Brussels continue their disagreements

Rome and Brussels continue their disagreements

Musical chairs in coalition government

Musical chairs in coalition government

Questions for Bank of Canada

Questions for Bank of Canada

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