There wasn’t too much in the way of major data points yesterday and market chose to ease into the week with little caution. Stocks in the Asian session had opened the week slightly lower and this carried through into the European session with concerns on China weighing on mining stocks while OPEC meeting anticipation dented the energy sectors. In the US session the bulk of market participants returned having taken an extended Thanksgiving break and sentiment was mixed, some early gains were given up late in the day and major indices were either side of flat.
In currency markets the euro was slightly weaker on the day, under some pressure from the greenback and GBP. The dollar itself faced selling through much of the day but comments late yesterday evening from the Fed’s Robert Kaplan helped lift the dollar from lows, with the USD index trading higher on the day and continuing that advance once again this morning. Kaplan mentioned he was concerned with the Fed falling behind the curve if they waiting too long to see evidence of Inflation. He cited risks to overshooting on employment and felt that rate hikes should remain gradual and patient, but likely the next rate hike is appropriate in the near future. We’ve seen a slight firming in the sentiment overnight and thus far this morning European stocks remain well supported, while US futures are also pointing to a higher open, while in currencies GBP has been an under-performer thus far in the European session following comments from Mark Carney this morning.
Sterling will continue to remain exposed to Brexit talk and this morning Mark Carney has started some selling as he warns a disorderly Brexit would have economic costs, even if the financial system withstands it. Not exactly a ground breaking hypothesis there, I think almost everyone is in agreement that the more disorderly Brexit becomes the larger the risk are to the UK economy, which is why it’s better for all involved that the Brexit negotiation process is carried out with the best interest of all parties. The biggest drag has been on UK financial institutions where stress test were carried out, the suggestion of the BOE is the UK banks carry an additional £6bln in regulatory capital in order to withstand Brexit shocks. That was enough to knock GBPUSD from highs above 1.3350 this morning to where we currently trade just above 1.3300. While EURGBP rallied briefly back above .8950.
The euro itself is looking slightly heavy this morning as markets await the OECD economic outlook and while EURUSD has pressed back towards 1.1900 almost .5% back of yesterday high print. Even EURGBP was lower this morning before Carney began to release the findings at the publication of the Financial Stability review. EURGBP range remains very consistent however, the first level of resistance to moves higher is .8961, while any push higher above .9000 continues to find sellers. Looking stateside we have plenty to sink our teeth into with the Fed’s Dudley, Harker and Powell all due across the wires throughout the day. We also have consumer confidence and a host of house price data as well and should they follow the general tone of yesterday’s comments and data, we would expect to see the USD trade firmer throughout the day.