Summary:
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British pound opened the week clearly higher following the news related to Brexit
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Chinese services PMI declined in October just hardly escaping a contraction territory
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Stocks in Asia move down, US Treasury yields back above 3.2%
The British pound kicked off this trading week on a strong foot following an article published by the Sunday Times over the weekend. It said that Theresa May has secured concessions from Brussels letting her keep all of Britain in a customs union with the European Union in order to avoid a hard border with Northern Ireland. Investors rushed to buy the pound despite comments from a Downing Street spokesman saying that the Sunday Times report was “speculation” and the negotiations are underway. The report also suggests that PM May will discuss a Brexit plan with the Cabinet tomorrow. Note that the UK wants to work out sufficient progress to persuade the EU to announce a special summit in November so as to sign the final details. Let us recall that this topic - how to avoid customs checks between the Irish Republic and Northern Ireland - has been the most significant sticking point in the ongoing negotiations. If the Sunday Times report is right, the EU has reportedly agreed a May’s proposal of a UK-wide customs deal, the one that negates the need for checks between the above-mentioned countries. While we could be getting closer to reach a final agreement on Brexit some business leaders seem to doubt any arrangements agreed between the UK and the EU would be favourable for their businesses. The Sunday Times also reported that as much as 70 business leaders signed a letter arguing that the government’s plans for Brexit and a no-deal scenario would be bad for companies and jobs. On top of that, it is worth citing the latest remarks from Brexit Secretary Dominic Raab who has written a letter to PM Theresa May where he has urged her to demand the right to pull Britain out of an Irish border backstop pact after three months. Either way, this is another step to move aside a Brexit risk once and for all, and if the two sites are able to sign a final deal later this month it could take a substantial burden off the pound letting the currency get back its appeal.
The GBP jumped higher at the open on Sunday but it has erased a lot of its gains ever since. The pound is trading 0.2% higher against the US dollar this morning but from a technical viewpoint a comeback toward 1.2930 could be on the cards before the currency resumes its uptrend. Source: xStation5
During Asian hours trading we knew non-manufacturing PMI (Caixin) from the China’s economy for October which declined noticeably to 50.8 from 53.1 missing significantly the median estimate pointing to 52.8. It was the slowest pace of growth in 13 months and the weak volume of new orders was predominantly responsible for such a disappointment. Notice that a sub-index for new business orders showed virtually no growth reaching 50.1 points, down from 52.4 in the previous survey and the worst performance since November 2008. The details also showed that some firms expressed their concerns regarding a possible impact of the trade dispute on future activity. Let’s remind that we were offered manufacturing PMI from China last week producing the value of 50.1. As a result, the composite indicator decreased to 50.5 from 52.1. The faltering China’s economy could turn out a significant obstacle for highly correlated assets such as Antipodean currencies, other EM Asian currencies and Asian stock markets as well. The Aussie is trading flat this morning while the NZ dollar is falling 0.2%.
Chinese PMIs continued slowing in October boding not well for the future economic activity. Source: Bloomberg
As a consequence of weakish moods in the services sector in China, it accounts for more than a half of the economy, Chinese stocks have declined. The Shanghai Composite is dropping 0.7%, the Hang Seng (CHNComp) is going down as much as 1.6%. The NIKKEI (JAP225) ended the day with a 1.5% decline while the Australian benchmark lost 0.5%. The end of the past week on Wall Street was not reassuring at all as all indices fell with the NASDAQ (US100) moving down by 1%. Note that another strong jobs report from the US pushed the US 10Y yield back above 3.2%, a move which puts the brakes on stocks’ performance globally.
The critical resistance in the Chinese stock market could be tested before long. A break through the bearish moving average seems to be a precondition to let the index continue climbing. Source: xStation5
In the other news:
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PBoC injected more than 400 billion yuan liquidity via 1-year MLF, the move predominantly offset other funds maturing today
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Japanese services PMI jumped to 52.4 from 50.2 in October, the composite gauge grew to 52.5 from 50.7 at the same time
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US sanctions on Iran take effect today, the net impact is limited after the US announced that 8 countries would be exempt
