Trump criticizes pace of rate hikes, Brexit talks intensify

Summary:

• Donald Trump criticizes Federal Reserve once again

• Provisional agreement on the Irish border may be ready on Monday

• Hurricane Michael threatens oil production in the Gulf of Mexico

The US dollar took a hit over the night and in turn is one of the worst performing currencies out of majors on Wednesday morning. One of the reason could be Treasury yields that stabilized and retreated from the 7-year peak near 3.25%. Another one are the words of the US President Donald Trump. Trump continued with his criticism of the Federal Reserve over the pace of the interest rate hikes. The US President said that there is no need to raise borrowing costs so fast. He added that he likes low interest rates and he does not want the record-breaking US economy to slow. He played down inflation concerns saying that there is no problem with price growth saying it does not look like inflation is coming back or at least at the moment and therefore there is no need to raise rates so fast. However, what Donald Trump may be missing is the fact that this record-setting economy has really tight labour market now (unemployment rate at 3.7%) what may eventually cause wage and price growth pressures to mount. Having said that, it may be the best time for the US central bank to hike rates as the US inflation continues to be at or a notch above the target and relaxing approach at this point may cause price growth to accelerate unchecked. Note that the US CPI inflation data for September will be released this Thursday.

GBPUSD moved higher thanks to weaker USD and boost received by the GBP from Brexit news. Even a provisional agreement on the Irish border issue could support the UK currency and in such case the resistance zone beneath the 38.2% Fibo level of the last major slump could be in reach. Source: xStation5

Summit of the EU leaders that is said to be pivotal in terms of Brexit is scheduled in just a week. Nevertheless, according to the reports and leaks the talks are far from over with few issues, like for example Irish border, still giving negotiators a headache. The latest report from Bloomberg suggest that British and EU negotiating teams are at the moment weighing the possibility of leaving the UK temporarily within the EU customs union. Such an agreement could overcome the Irish border problem until negotiators tailor perfect agreement. Moreover, sources cited by Bloomberg claim that there is a positive momentum in talks and intense negotiations over the next five days could result in a “provisional” agreement resolving the issue being ready on Monday, 2 days ahead of the launch of the summit. While this can be viewed as a delightful development for the PM Theresa May, she may have even bigger domestic reasons to cheer. A report surfaced yesterday showing that the scale of opposition in her Conservative Party may be big enough to make Brexit proposals unpassable in the parliament (we elaborated on the issues in yesterday’s DAX post). However, according to The Times report, the U-turn may be looming as a group of 30-40 MPs from the Labour Party is said to be ready to back May’s Chequers-style deal. This is quite unexpected as the Labour Party leaders announced earlier that the Party will oppose any kind of deal similar to Chequers. The group is said to defy their party leaders in order to prevent the UK departure from the EU without any deal in place.

CHNComp continues to trade within the consolidation ranging 10350-11180 pts. Notice that despite opening higher today the benchmark failed to produce subsequent gains and is trading in the vicinity of opening price. Source: xStation5

Trading during the Asian session was rather upbeat with gains seen across the continent. Moreover, we have seen some previous trends to wane today. Namely, the tech sector managed to cease its three day long losing streak and push higher. Apart from that, the Japanese yen edged lower after few days of gains being the worst performing G10 currency at press time. Equities in Australia and Japan moved slightly higher while the stocks in China traded mixed. Elsewhere, oil was little changed on the back of equivocal news. On the one hand, the Hurricane Michael is threatening to curb the supply by damaging production facilities in the Gulf of Mexico while on the other IEA Executive Director urged OPEC to boost output as current high oil prices start to bite into the global growth.

OIL pulled back recently but may be set to retest high around $86.75 handle in case Hurricane Michael causes significant damage to the oil production facilities. Source: xStation5