Market News & Insights
5 October 2018

“Job done” With Negotiations as Bonds Sell-Off Across the Board

Day-to-day we try our best to provide a new and exclusively insight to financial markets and in recent months a variety of emerging stories has allowed us to do that. Yet this morning as I turned the news on at home, facing me again for the third day in a row, were replays of May’s entrance to her party speech. We just can’t seem to let it go. The same could be said for May and her insistence on the ever criticised Chequers plan. Brexiteers had something to cheer yesterday as President of the European Council Donald Tusk offered the UK a “Canada+++” style trade agreement that is “much further reaching on trade, on internal security and on foreign policy cooperation”. ‘Job done’ in negotiations apparently. Boris Johnson made sure to compliment the movement as he continues to surround any major ‘progression’ for EU cooperation. The Irish border will continue to be a disputed issue until deadline day but any developments on trade are a welcomed positive for sterling. Since yesterday’s low at 1.1274 GBPEUR has gained over .6% sitting above 1.13 this morning. GBPUSD has followed suit with a .68% gain this morning as the cross broke 1.30. Theresa May will face further questions as her pledge to end austerity, renew the NHS, freeze fuel duties and increase council house building looks set to leave a £35bn-a-year hole in the UK Treasury’s public finances. Hmm. This is highly unlikely to pass Tory Hawks and with fresh criticism on the Brexit front, it comes as an unneeded doubt.

Other than Brexit revelations the continued threat to Europe remains the contagion fears of Italy’s populist government and their impact on the European financial system generally. Reports this morning show that the government now look set to scrap the previous administration’s efforts in limiting Chinese investments in strategic sectors in an attempt to boost relationships with Beijing. Italy’s government have been active volunteers for a role in China’s vast global infrastructure programme in a trend that continues to oppose the EU. EURUSD has look set to find safety above 1.15 but any revelation like this will add to fears and continue euro sell-off which has seen the cross drop back below 1.15 this morning in .3% downside move.

US headlines have all eyes are on last night’s bond sell-off that spread across global markets – triggering the biggest US equity decline in nearly four months. The drop comes on the back of revised fears that, regardless of rising optimism about the world economy on a whole that rates could in fact climb to levels that would actually restrain growth. The move hit stocks across the US, Europe and Asia as the S&P 500 dropped .8% on the back of a 1.4% slide. The dollars reaction seems relatively limited on open as the greenback is up against all major currencies other than sterling and the Japanese Yen. The only data to take note of today is the ever awaited US Non-Farm Employment change and yesterday’s sell-off on global sovereign debt markets has made it all the more interesting. Following Wednesday’s initial ADP release of 230k to 185k forecast and the Federal Reserve Chairman Jerome Powell’s ‘Trump like’ praise of the United States recent economic performance a good number could see the dollar continue its dominant run.