Sterling traders fix eyes on MRP poll
If I had a pound for every time we heard a phase one trade
deal was close…but it is apparently still close, but is it very close like it
was a few days earlier? Donald Trump says it’s close anyway and that’s all the
excuse the bulls needed to get to new all-time highs on Tuesday. Trump said the
sides are in the ‘throes’ of doing a deal but added he’s ‘holding it up’ to get
a better deal. The usual stuff.
US equity indices pushed up to new intraday and closing
highs again on Tuesday. Upbeat outlooks from a couple of retailers boosted
retail stocks – important signs of strength from the consumer in the run-up to
Black Friday and the key Christmas quarter. Dicks Sporting Goods and Best Buy
led the way as they upgraded forecasts. The Dow finished at 28,121 whilst the
S&P 500 closed at 3,140.50.
All good in the hood? The VIX certainly indicates so
as it slips to multi-month lows around 11.50. Volatility has been utterly
crushed by the Fed’s pivot to easing. However, bonds are not exactly dancing
entirely to the same tune. US 10s have retreated in the last fortnight to 1.74%
from a high around 1.96%. 2s down to 1.59% from 1.7%. More flattening and
growth is ready to flatline in Q4. The Fed’s Robert Kaplan agreed that Q4
will be soft – enough to get anyone worried – we will watch the bond markets
with interest. They may start to shout before the equity markets cotton on.
Today will be the last full trading day in the US this week.
Wall Street will be shuffling off for Thanksgiving tomorrow. Friday is a short
day and many traders will be away.
UK equities are not entirely missing out this time – the FTSE 100 nudged up above 7400 and the FTSE 250 hit its highest in 15 months. Europe was flat with Frankfurt mildly weaker and Paris a whisker higher. Really Europe lacked for direction, but we are looking at further gains today as the FTSE breaks long-term resistance at 7440.
Asia has been broadly higher. Smart gains for the ASX 200 in
Sydney led the way with Japan and Hong Kong following less decisively. Shanghai
is softer. Chinese industrial profits slipped 10%, the steepest fall in 8
In FX, USDJPY has firmed up above the 109 level again
taking support from the 200-day line on the same number. If a trade deal is
signed before Christmas we’d see further gains.
Having rallied through much of the European session,
EURUSD still remains under a weight of gravity and has retraced overnight.
Longs are getting squeezed by the weight of carry. As per yesterday, key support can be found at the Nov low at 1.0990
before the Oct low at 1.0880. Bulls need 1.1030 to break the downtrend, which
failed to happen on Tuesday as the rally ran out of gas around 1.10250. For all
the movement, it’s clearly a massive snooze-fest in FX and in EURUSD in
particular with one-month ATM volatility hitting a record low on Tuesday.
We could get some action
today though with a major data dump from the US ahead of the
Thanksgiving holiday. We have on tap the Chicago PMI, durable goods orders,
core PCE and the second reading of the Q3 GDP print. The Chicago PMI is
expected to bounce back from last month’s 4-year low at 43.2 to around 47.2.
GDP is expected to be unchanged at 1.9%. Core PCE seen at 0.2%, or 1.7% on an
annual basis and short of the Fed’s 2% target for a tenth straight month.
Personal spending numbers within the PCE release will be closely watched for
signs of consumer health of course. Unfortunately for those seeking volatility,
the US data is unlikely to do anything especially surprising, but, that said,
if it’s on the softer side of evens then we may see yields dip.
GBPUSD stable on 1.2850. Eyes on a golden cross
still. Attention in terms of the general election is firmly fixed on tonight’s MRP
poll from YouGov. It will be released at 22:00 GMT. Given most traders will
be in bed or the pub it could result in some whippy price action in GBP pairs.
This detailed survey aims to offer a prediction for every seat (ex-NI) and it
correctly predicted the hung parliament in 2017. With the Tories apparently
sitting pretty, this poll has the potential to change the narrative of the
campaign if it shows a different outcome. Remember, a Tory majority tends to be
near-term supportive of the pound as anything else is messy and uncertain.
Elsewhere, gold is trying to firm around $1460 but
struggling for momentum and remains in a medium-term downtrend that persists as
the dominant force. If US yields do decline though we may see the recovery
begin. Oil has firmed a little to above $58.30 – bulls looking for a
break north of the high at $58.65 else it could retrace some of the recent
gains. Crude oil inventories expected -0.5m.