Preventing the public airing of positions

Today's news headlines:

‘Donald Trump imposes sanctions against Turkish officials’. The US President called for Turkey to observe an immediate ceasefire in Syria, placed sanctions on Turkish officials and pledged to increase steel tariffs to 50%. The US Treasury Secretary, Steven Mnuchin, said that Trump had signed an executive order imposing sanctions on Turkey’s defence, energy, and interior ministers, as well as the Turkish government’s defence and energy departments. Trump said: 'I am fully prepared to swiftly destroy Turkey’s economy if Turkish leaders continue down this dangerous and destructive path.' (Financial Times)
‘China's factory prices post steepest fall in three years’. China’s trade dispute with the US, combined with weaker global demand resulted in the Producer Price Index falling 1.2% through September on the year, marking the steepest decline since July 2016. Core retail inflation pressures remain muted, meaning policymakers could face pressure to introduce stimulus to prop up demand. (Reuters)

Waiting for Godot

After all of last week’s action, this week is taking a more contemplative tone as markets parse the implications of a 'limited trade agreement' with China, and stop-start Brexit negotiations. At the same time, the escalating Turkey-Syria conflict is proving to be yet another distraction for the US administration.

In spite of Donald Trump’s assertion that a toehold has been established in the trade discussions, from which he hopes to tackle the more substantive trade concerns like intellectual property protection; illegal subsidies; etc., the Chinese domestic media hasn't described the fruits of the meeting as a ‘deal’. This suggests this characterisation is pitched specifically for the US domestic audience, but lacks substance of form. Most markets are rightly sceptical of the President's representation and are waiting to see if this will, in fact, result in the next step or reset back to square one, as it has on every previous occasion.

Across the pond, the communication around the ongoing negotiation seems calibrated to cause the most uncertainty possible. Following positive noises from the Irish PM, a subsequent note from Jean-Claude Junker appeared to dispel the signs of momentum. There are some indications this morning – not least because Michel Barnier said a deal is still possible this week – that this may have been a tactical position from the EC President rather than a straight-up refutation of progress. Boris Johnson is rumoured to be conducting the remains of this back-and-forth negotiation in secrecy, lest we have another public airing of positions before an agreement.

That leaves us with this week’s newest distraction, Donald Trump’s Syrian self-goal. The alleged private abandonment of Kurdish allies has been replaced with an actual abandonment covered by mild Turkish economic sanctions. The public excoriation of the President’s actions has been bi-partisan and comprehensive. It's just the latest in the recent series of administration fumbles which provide ammunition for the opposition heading into 2020 campaign season.

Bottom line: Realistically we are waiting for news before markets break out of current ranges. This week’s data, while capable of providing momentum, is expected to reaffirm our existing view of slow and steady economic deterioration. A fresh catalyst is needed to get things moving at a faster clip; last week’s unrestrained excitement is proof that the market is desperate for good news.

GBP/USD

Sterling tailed off throughout much of yesterday due to the weekend’s negative comments over the chances of an imminent Brexit deal. The pair pared losses during the North American and Asian sessions and has begun the day higher following Michel Barnier’s comments that a Brexit deal this week is still possible. Once again, a failure around the 200-day moving average signals that it’ll take more than positive sentiment to drive the Pound back to the 1.30 level.

GBP/EUR

Like GBP/USD, moves in the pair have been exclusively driven by the ebbs and flows of Brexit. This morning, the pair failed at the psychologically important 1.15 handle, but the outlook remains positive as long as Brexit negotiations continue. UK employment data is due out later; average earnings and unemployment are expected to remain at 4.0% and 3.8% respectively.

EUR/USD