Dollar dithers
By Arnaud Masset
Will he or won’t he do a tax reform? This question – the ‘he’ being President Trump – is gnawing at investors’ confidence and sent the USD into a slide of as much as 1.50% since the beginning of the week. The other key USD driver remains the upcoming prime rate hike, which will probably take place in December. Neither is a done deal, so further dollar weakness must be considered. In the medium-term, we remain dollar positive.
Today the market awaits fresh inflation data: median forecasts for the headline measure inched up to 2.3% annually, compared to a print of 1.9% in the previous month. Core inflation is expected to rise less at 1.8%, up from 1.7% in August. Retail sales are expected to have picked up in September, but the impact of the hurricanes is hard to predict yet – so investors will take the data with a grain of salt.
Pound perils – Brexit is back
By Yann Quelenn
As EU-27 leaders huddle in Brussels today, a key topic will be a future trade agreement with the UK. We don’t foresee ‘No deal’ as a realistic outcome: the EU’s lack of unity will benefit the UK. So too will the EU’s perennial problems of massive debt, Grexit and immigration. Still, the EU are playing tough, blocking trade talks until the UK concedes three points: guaranteed rights for EU citizens in the UK, a cash settlement of around 10 billion GBP and a secure border in Northern Ireland.
Peso’s plunge
By Peter Rosenstreich
Hold on to your Sombrero – USD/MXN break of its 200-day moving average suggests bullish momentum towards triple-top resistance at 19.25 Mexican pesos per US dollar.
Why? The Ottawa round of NAFTA negotiations have turned nasty. Globalization and multi-national cooperation have been ejected by protectionism. MXN was rocked by news that Mexico’s Finance Minister Meade is exploring trade alternatives and tariff measures in case of a NAFTA implosion. Then came word of US insistence on a ‘sunset clause’ that would allow treaty renegotiation every five years. And there is talk that President Trump is having side conversations with Canadian PM Trudeau on a bilateral agreement.
All fake news? The optics of a smiling Trudeau and a grimacing Meade are telling. We think the probability of a full-blown NAFTA break-up (or down?) has increased significantly. Further MXN depreciation is expected, as markets has not incorporate fully the necessary risk premium.