GBP recovers from soft start; USD moving lower

Summary:

• Pound holding up despite adverse Brexit developments

• USD sliding lower as retail sales miss

• Oil back near $80; Traders following Saudi tensions closely

• DE30 recovers after election results

• Crypto hedge fund industry continues to boom

The pound is holding up surprisingly well today, recovering a little after gapping lower over the weekend as hopes of a Brexit deal in principle this week have diminished significantly. Several upbeat remarks from politicians on both sides of the channel had raised hopes in the last couple of weeks that the UK and EU would reach an agreement in principle before Wednesday’s EU summit. However, these hopes were dashed yesterday when a meeting in Brussels between Raab and Barnier seemed to yield no progress. The prospect of a prompt resolution is looking increasingly unlikely with both sides digging their heels in on key “unresolved issues” with the so-called Irish backstop chief amongst them. While the bulk of the agreement has been agreed upon, the small parts which haven’t seem to remain as far from a solution as they’ve ever been and unless one side is willing to cede - which doesn’t appear likely at present - then no agreement will be reached. This has once more raised the prospect of a no-deal scenario which could well cause another drop for the pound should it occur - or even if it appears to have a greater chance of happening.

The main economic data from North America today has shown an unexpected slowdown in consumer spending in the US and done little to help the US dollar which remains lower on the day against all of its peers. US advance retail sales for September showed a month-on-month increase of 0.1%, far smaller than the 0.6% expected and in line with the previous reading. The core figure was even worse, in falling for the first time in over a year at -0.1%. This was a bit of a negative shock against a consensus forecast of +0.4% and a prior of +0.3%.  The US dollar has been coming back under a bit of pressure of late and it’s gotten off on the wrong foot this week in sliding lower across the board. The biggest gainer against the buck is the Turkish Lira which is higher by almost 2% as it looks to continue its recovery following the release of the US pastor on Friday. EM gains are a common theme with the Real, Rand and Forint also making steady steps higher.

It’s been a bit of a seesaw day for the oil markets, with brent crude first gapping higher after the weekend before, paring those gains and turning negative on the day. The market jumped on the open after escalating tensions surrounding the disappearance of a prominent Saudi journalist caused worries over potential supply disruptions from the kingdom. Saudi Arabia has been under pressure since a critic of Riyadh and a US resident, Jamal Khashoggi, disappeared on 2nd October. As the de facto leader of OPEC, Saudi Arabia holds great sway over global oil production and as such, any serious geopolitical tensions could threaten the supply.  

Angela Merkel was often cited as a person responsible for the EU’s migration problems as well as all other misdoings by the bloc. Now, the opposition to her starts to strengthen within her own country. Local elections were held in Bavaria yesterday and their outcome can be named as a breakthrough. Namely, the Merkel’s major coalition partner, Christian Social Union (CSU), lost absolute majority in its home region. Among most often quoted reasons were dissatisfaction with Merkel’s policy and turbulences in the domestic politics in the first half of the year. This news caused the DE30 to open lower, but the market has recovered as the day wore on and trades in the green just after the European close.

Major cryptocurrencies march higher at the beginning of the new week. Bitcoin along with other coins surged in the morning but reversed some of the gains later on. After struggling in the vicinity of $200 billion mark the capitalization of the whole market climbed back above the $210. The hedge fund industry continues to embrace explore the potential that digital assets pose. According to report released by Crypto Fund Research as much as 90 new crypto hedge funds were launched in 2018. To put this figure into context let us mention that it constitutes around 20% of all hedge funds opened so far this year. Moreover, the report says that about 2/3 of all hedge funds operating on the cryptocurrency market were launched during the seven month period ended in September.