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Today's news headlines:

‘Risk of no-deal Brexit ‘very real’ – European Commission President Jean-Claude Juncker addressed the European Parliament this morning stating the risk of a no-deal is still ‘very real’, highlighting how little time is left. He also stated the UK Prime Minister stands by his claim that ‘he wants a deal, but he will leave with or without a deal’. (Thomson Reuters)
‘With repo market still on edge, Fed preps second blast of cash’ – Yesterday, for the first time in over a decade, the Federal Reserve intervened in US money markets to inject liquidity following a spike in short-term interest rates. It is thought several catalysts were at play, but the phenomenon highlights a system-wide issue of low liquidity that the Fed may address in tonight’s Federal Open Market Committee (FOMC) press conference. (Bloomberg)

Eureka!

The fiscal policy bandwagon is gaining advocates and momentum at last. Governor Banque De France and European Central Bank member, Francois Villeroy De Galhau, has called on Euro-area members to step-up fiscal stimulus. This direct communication, started by Mario Draghi at the last ECB press Conference, seems to be bearing fruit, as a number of Scandie nations have announced measures.

According to Bloomberg, Sweden are announcing 30bn SEK (~2.8bn EUR) of additional spending in their 2020 budget, and the Dutch government will unveil a national investment fund estimated to yield approximately 50bn EUR of financial heft. Those aren’t small steps, but we need the two biggest Eurozone nations; France and Germany to take action. Germany especially has the capacity to deploy considerable resources without upsetting their much-prized budgetary surplus.

Meanwhile, the damage from last weekend’s attack on Saudi Aramco oil facilities has now been downgraded and it appears most of its capacity will be brought back online by month end. Brent crude, a key benchmark of oil price, has dropped towards last week’s levels. This is very good news because oil price is what economists would call ‘inelastic’; a rise in oil price doesn’t cause consumers to purchase less petrol, they just have less disposable income on other items leading to a slowdown in consumer spending. This is a big obstacle to continued growth averted!

Bottomline: Taken together this is good news for the global growth backdrop, we just need more countries to board the bandwagon to help establish greater investment momentum. Until these polices are rolled out and take effect, we need continued support from monetary policy. The ECB took a sizable policy step last week, while we anticipate the Fed to lower interest rates tonight. The Bank of Japan isn’t expected to move tonight but might discuss further stimulus to counter a flagging export market. The Bank of England probably can’t change policy due to Brexit but this morning’s Consumer price Inflation reading (the worst since Jan 2017) is another sign the next move is lower.

GBP/USD

Yesterday, the trade-weighted Pound index closed above its 200 daily moving average as the pair climbed to highs of 1.2527 overnight. On London open, the pair fell back below the 1.25 handle, and weaker than expected UK inflation may continue the trend. The Fed is in the spotlight tonight, so volatility outside London trading can be expected.

GBP/EUR

In overnight trading, the pair broke through the 1.13 level reaching highs of 1.1314. The 200 daily moving average for the pair lies at 1.1317 and is likely to be a significant resistance level. This morning’s inflation data for the UK and the Eurozone could set the trend for today’s movements.

EUR/USD

Since last week’s European Central Bank (ECB) announcement, the pair has been range bound between 1.10 – 1.11. While the pair could break this range tonight when the Fed updates markets on monetary policy, London trading is likely to remain relatively uneventful.