AFEX Market Watch Friday 2nd December

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Friday Dec 2nd • 00:30 AUD Retail sales MoM • 09:30 GBP Construction PMI • 13:30 CAD Unemployment Rate and Employment change • 13:30 USD Average hourly earnings • 13:30 USD Non-farm employment change and unemployment rate

GBP - Sterling

Early London trading yesterday saw the release of UK manufacturing PMI which was slightly disappointing and caused light Sterling selling. This was followed by a comment from David Davis who said that the UK would consider making EU budget payments if required to meet the aim of gaining the best possible access to EU markets for goods and services. Thus he fired the figurative starting gun for Sterling as it opened up the possibility of a “soft” Brexit and the Pound jumped higher quickly. It burst through technical levels only pausing for breath near the London close and has managed to steady at higher levels overnight. This is the first comment from David Davis that has been relatively specific whilst leaning towards the possibility of a “soft” Brexit and as such could prove to show a slight change in Government policy towards Brexit.

EUR - Euro

Of course the spotlight shines brightly on the Italian referendum and the Austrian Presidential election taking place on Sunday. The Euro market volatility may not unfold at the same pace as Brexit or the US presidential vote.

Firstly, Prime Minister Renzi may not resign straight away or even at all.

Secondly, even if he does resign Italy could easily put a “Technocratic” Government in place for 18 months, until by law they need to hold the next election.

So all in all the market could be making a mountain out of a molehill for the Italian referendum. Regarding the Austrian Presidential election, although the election of far right wing leader Herbert Nofer to this position would be concerning to Europe, it again will take time for any changes to be made in Austria as this position does not wield huge amounts of power. Whilst the Euro was losing ground against Sterling it was gaining against the Dollar and hedged in by large option expiries. The Euro has fallen against the Swedish Krona the last 3 days but this has been noted by the Riksbank with Deputy Governor Skingsly saying that they will intervene in the market if necessary. This did push EURSEK higher but the timing of the quote is a little puzzling as the last time they threatened to intervene EURSEK was nearly 10% lower.

USD - Dollar

The Dollar was relatively steady yesterday as US rates continue to edge higher. Fed Governor Kaplan said that he does see rate hikes ahead without a US recession and added that the stronger Dollar needed to be taken into account when setting policy. This implies that US rates may well not be hiked quickly as a strong currency is a headwind to inflation. We only need to look at the UK which has experienced a fast currency deprecation to see how inflation can be imported relatively rapidly. The big data point today will be the Non-farm payrolls (NFP) release at 1.30 pm UK time. After Wednesdays positive ADP jobs report the market is expecting a good NFP this afternoon.

Commonwealth et al

Commonwealth currencies managed to have varying degrees of strength against the developed market currencies with the Loonie gaining against the US Dollar and Sterling on the back of the Opec oil agreement. The AUD and NZD gained against the US Dollar but lost ground to the Pound and are out of the spotlight at the moment.

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