Morning Brief – 20th September

Morning Brief – 20th September

Fri 21 Sep 2018

All quiet in Austria,


Following a tumultuous day yesterday, Sterling this morning has had a directional purpose, currently trading around 30 basis points stronger on a trade weighted basis since its market open. The strong buying support is being driven by anticipation of progress at the informal EU summit in Salzburg, Austria, however, with little news emanating from the event, I’m afraid Mozart is probably still the most interesting thing to come out of the city that sits close to the German border. The Dollar continues to lose ground amidst an underwhelming trade war and with mid-term election risk beginning to creep into the forecasts of investors. The Rand, which faces an interest rate decision today, is taking advantage of persistent Dollar weakness, attempting to claw back to 19 versus the Pound and breaking through 14.50 against a weakening Dollar. The Euro also receives a bid this morning as Brexit sentiment also spills over into a stronger Euro.



Since Market Open:


  • GBP:   Salzburg remains quiet throughout dinner last night as investors pour hope into today’s continued negotiations.


  • EUR:   The Euro receives relief from positive Brexit sentiment as the front end of the Italian yield curve continues to rise, placing downward pressure on the single currency.


  • USD:   Mid-term elections draw ever closer with market beginning to price in the risk of newfound political paralysis from anti-Republican support.


  • EM:    Judgement Day: The South African Reserve Bank publishes its interest rate decision today with the Rand trading up 0.5% on the day.



Pound Sterling:


New Highs:


Sterling has confidently broken through the 1.32 mark against an ailing US Dollar as Brexit sentiment lifts the Pound dramatically. Sterling has now recovered all of the losses it made in August which were primarily driven by negative Brexit sentiment. The move has considerable conviction with EURGBP passing through the 38.2% resistance level and now sitting in parallel with the next significant hurdle of 0.885. It’s time for investors to consider the following: is the status of Brexit better now than it was in July? It’s a difficult question, however, the answer to this conundrum will likely produce the trading pattern of a Brexit neutral period. Whilst economic data looks good, there’s little reason to condemn Sterling back to its August lows, particularly against an ailing US Dollar.


The Euro:


Free Ride:


Yesterday’s tumultuous day in Brexit saw the Pound and Euro move in tandem with Brexit sentiment. Yesterday’s main events included the supposed rejection of Michel Barnier’s offer on the Irish border by Prime Minister May, strongly undermining the support of the Pound and the Euro. However, promises for flexibility and the circumventing of the European Commission (whom Mr. Barnier represents on behalf of the Council) thereby directly accessing heads of Member States that collectively produce the mandate for the lead negotiator, can allow Theresa May room to achieve progress. Consequently, Sterling and the Euro continue to trade in tandem this morning, receiving fresh relief from selling pressure (at the expense of the Dollar) with each rumour that escapes.



The Dollar:




Despite betting companies pricing the probability of President Trump’s impeachment close to 50% throughout 2017, the Donald remains at the helm of the White House. Continued heat from investigations swarms towards the President, however, never gets close enough to Burn the (in?)famous business celebrity. Despite the perseverance of Trump, his popularity has waned, particularly among certain interest groups (women in particular). It is unsurprising therefore that the Dollar continues to face a headwind as mid-term election expectations creep into analysts’ forecasts and investors’ decision making. The Dollar’s immense value is being questioned daily and it will be important to understand whether the progression is under scrutiny or whether 2018 Dollar strength has played out.


Emerging Markets:


Today’s the day:


The South African Reserve Bank, headed up by Lesetja Kganygo, will produce its monetary policy decision to the market and citizens today. The Bank is under considerable pressure to raise rates given the run on its domestic currency and its increasing inability to finance non-domestically denominated maturing debt. However, the economy is in a recession and domestic growth has been sub-standard for a considerable time throughout the latter months of political paralysis under Jacob Zuma and even now under the leadership of Cyril Ramaphosa. If South Africa raises rates heavily enough, the Rand will get a considerable boost, however, doing so could strangle the domestic economy creating greater medium-long run troubles for the Rand than a no-hike, or even cut.




Discussion and Analysis by Charles Porter



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