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Markets begin to tone down ahead of holiday season; sterling extends slide

XM.COM

    • Stock market rally loses steam as investors await further details on ‘phase one’ deal
    • Pound continues to slip on revived no-deal Brexit fears
    • Dollar supported by upbeat US data
    • Aussie, kiwi and loonie on the backfoot; domestic data in focus


Stocks pause for breath on lack of fresh headlines

The global rally in equities appeared to be running out of steam on Wednesday as shares succumbed to profit taking after several days of impressive gains. Equities received a major boost after the United States and China last week announced they had reached an agreement on a ‘phase one’ trade pact following weeks of intense speculation about whether a deal was attainable.

The major indices in the US eked out gains of 0.1% on Tuesday, though this was still enough to drive the S&P 500 and the Nasdaq Composite to record closes. Stocks in Asia were mixed today and futures for European US indices were last trading flat.

In the absence of fresh details on the terms of the deal or when it is expected to be signed, there was some nervousness in the markets. However, even without any new drivers, the injection of positive sentiment from the announcement of the deal is likely to be enough to last till the end of the year as trading winds down during the Christmas and New Year period.

Pound erases post-election gains

But as the rally in equities ground to a halt, currency markets experienced increased volatility. Sterling slumped by 1.5% yesterday, wiping out all the gains that followed Boris Johnson’s resounding election victory where he secured a solid majority to “get Brexit done”.

The British currency lost its post-election shine after it was reported that Johnson plans to impose an immovable deadline for reaching a trade deal with the EU by blocking any extensions to the transition period beyond December 2020. And while this is likely to be just another negotiation tactic to force the EU to move quickly in the talks, it nevertheless ensures to keep traders on their toes for at least another year when it comes to Brexit.

The pound managed to stabilize, however, around the $1.31 level after the latest UK jobs report beat expectations. The focus is now on tomorrow’s retail sales figures and the Bank of England’s policy decision.

Dollar led higher by US data; impeachment vote eyed

The US dollar also found support from better-than-expected data, with building permits, housing starts and industrial production all topping the forecasts yesterday. Comments by Fed officials also helped the dollar nudge higher. Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan reiterated the Fed’s on hold stance in their remarks. The dollar index edged up to a near one-week high of 97.36 today, though weakness in other majors was also a factor in the greenback’s advances.

There are no major US releases on the agenda today so traders will probably be keeping an eye on the vote in the US House of Representatives later in the day to see whether or not lawmakers decide to impeach President Trump. The impeachment inquiry has yet to have a major impact on financial markets, despite the fact that the Democrat-controlled House will probably vote in favour of approving two articles of impeachment against the President, as there’s little chance that the Senate - where Republicans have a majority - would convict him.

Aussie, kiwi and loonie rallies suffer a setback

The commodity-linked Australian, Canadian and New Zealand dollars took a knock yesterday, with all three retreating against their US counterpart. The aussie is under pressure on increased expectations that the Reserve Bank of Australia will cut interest rates early next year and employment numbers due tomorrow could reinforce this.

The New Zealand dollar dipped yesterday after dairy prices fell by 5.1% in the latest biweekly dairy auction. However, there could be some positive news for the kiwi if GDP numbers out of New Zealand later today confirm a small pickup in growth in Q3.

The loonie will also come under the spotlight as inflation figures are due out of Canada later today.

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Source: https://www.xm.com/daily-market-comment-markets-begin-to-tone-down-ahead-of-holiday-season-sterling-extends-slide-114447
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