GBP swings on backstop headlines; Equities fall back

Summary:

• Pound soars on Merkel’s comments

• GBP earlier had fell after Boris letter

• US indices pull back

• DE30: Wirecard explore new partnership

• Commodity Wrap - Oil, Gold, Corn, Cocoa

There was a sharp move higher in the pound this afternoon after some conciliatory remarks from the German chancellor. Speaking in Reykjavik, Merkel, said that on the backstop they must think about practical solutions in what seems to be the first signs of movement on this impasse. 

The pound has been trading lower on the day before the news broke after a letter from UK PM Boris Johnson to Donald Tusk, president of the European Council, was  rebuffed with the response from Brussels on Twitter a mixture of disdain and disbelief. The comments from Merkel are still some way short of any tangible progress but at least they signal some willingness to discuss the issue at hand. The backstop remains the main stumbling block to a withdrawal agreement and should the issue be resolved in a satisfactory manner for both sides then the chances of a no-deal Brexit will drop significantly

US benchmarks are trading a little lower today after 3 consecutive gains as traders are seemingly taking stock of the recent recovery.   The recovery which began shortly after the large drop last Wednesday is now pretty much complete and traders will be watching closely to see whether there’s now a change in trend higher. A key line in the sand could be seen around 2944 and while the outlook has improved in recent trade, unless the market can move and end the day above there then it may be premature to say the worst of the sell-off is behind us.

Later this week the Jackson Hole Symposium could well provide the deciding factor in whether the weakness we got at the turn of the month is over or whether there is in fact another leg lower still to come. The focus will be on Fed chair Powell and in enforcing a media blackout going into the speech there’s some suggestion that we could be in for something big. The market has already fully discounted a 25 bps (basis points) cut at the next Fed meeting, with the probability of a 50 bps move sitting at just under 20% at the time of writing. This seems to be pretty dovish considering the current backdrop and represents a fairly high bar for the Fed to deliver an even stronger message. 

European bourses have also seen some selling and are set to close lower in a few minutes time. The DE30 nearly dropped down through the 11600 level earlier but has moved off the lows into the cash close.  Wirecard (WDI.DE) is trading higher today following reports saying that OYO, Indian hospitality chain backed by Softbank, is considering using digital payments technology of the German firm. The two companies are planning to collaborate globally in the markets where OYO is present, including US, UK, EU and South-East Asia. OYO’s portfolio includes over 23 thousand hotels and more than 125 thousand vacation homes for rent.

Our latest commodity wrap focuses on Oil, Gold, Corn and Cocoa and can be read in full here.