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Reasons to be twitchy

No deadline for trade deal

Investors prone to worry had at least a couple of opportunities for fretfulness on Tuesday and overnight. The US president took advantage of his visit to Watford to downplay the likelihood of an imminent China trade deal and Australia reported slower growth in the third quarter.

With the reintroduction of US tariffs on Argentina and Brazil, and the prospect of increased import taxes on China kicking in ten days from now, investors were already on edge. Trump's comments yesterday made them that bit more nervous. He has "no deadline" for reaching a trade agreement with Beijing and "in some ways it's better to wait until after the election". Investors were not convinced by his claim that America is doing "very well" from the trade war.

Their reaction was as it had been the previous day; to mark down share prices and other "risky" assets and to treat the US dollar with caution. The dollar put in a slightly below-average performance, holding steady against the euro and losing half a cent to sterling. Meanwhile the safe-haven Swiss franc and Japanese yen led the field, slightly ahead of the pound.

Schumpeter and Australian GDP

Tuesday's economic data were unremarkable. Britain's construction sector purchasing managers' index was stronger than expected at 45.3. In Brussels, the ECB's Benoît Cœuré set out his vision for Euroland's economy and in Canberra this morning the ABS reported that gross domestic product expanded by 0.4% in Q3.

The drift of M. Cœuré's text was that the EU is doing a poor job of integration. Capital markets are disjointed and "the absence of a Schumpeterian process of creative destruction" leaves too many zombie institutions surviving against the odds. Although the speech did not directly affect the euro, its sentiment strikes a chord as Europe limps from one crisis to the next.

Australia's third quarter 0.4% GDP growth was not a complete shock. Analysts had predicted a 0.5% expansion and the previous quarter was revised up from 0.5% to 0.6%. Tax cuts and low interest rates were not enough to stimulate consumer spending: consumers preferred to bank their tax savings for a rainy day.

PMIs and BoC

The second monthly avalanche of purchasing managers' index readings focuses today on the services sector. This afternoon the Bank of Canada is expected to keep its benchmark interest rate unchanged at 1.75%. At any moment the US president might choose to startle investors with a new angle on trade.

Already out, Australian services PMIs from AiG (53.7) and Markit (49.7) pointed in opposite directions but were on average positive at 51.7. Japan moved back above breakeven to 50.3 and China's Caixin pushed more than two points ahead to 53.5.

In the context of America doing "very well" from the trade war with China, it will be interesting to see if the ISM services PMI this afternoon lives up to its 54.5 forecast. Britain is pencilled in for an unchanged 48.6 and the weakest reading from Europe. Australian trade and retail sales figures come out tonight.  

GBP: Close behind the leaders

GBP: Close behind the leaders

USD: Trump dismissive on trade

USD: Trump dismissive on trade

CHF: Shares lead with safe-haven JPY

CHF: Shares lead with safe-haven JPY

EUR: Cœuré calls out EU leadership

EUR: Cœuré calls out EU leadership

AUD: Growth slows in Q3

AUD: Growth slows in Q3

CAD: No change expected from BoC

CAD: No change expected from BoC

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