E Markets: Anniversaries

Celebrating age seems out of favor in a world obsessed with youth and technology but the turn of the markets in October lingers over November despite the best efforts to make it a party for All Saints’ Day. November brings anniversaries from the end of WWI to the Spanish Flu to the assignation of Martin Luther King, Jr. There are two anniversaries to consider today – the start of the EU in 1993 and the start of Bitcoin in 2008 – both matter to financial markets but contrast in their philosophical underpinnings with the EU focused on centralization and BTC focused on decentralized, distributed ledgers. Overnight, both show up as GBP gains on Brexit deal hopes and CNY gains on government support hopes.

GBP rallied as UK PM May strikes a deal with EU that gives financial services continued access to their market after Brexit. The UK Brexit Secretary Raab in a letter to the Commons committee expects a wider deal in 3-weeks.

CNY rallied as further stimulus plan hopes drive up shares for the first time in 7-months. After the Wednesday Politboro meeting and weaker PMI reports, Bloomberg reported another round of stimulus plans are in the works– including tax cuts, more deficit spending, more local government special bonds, lower RRR from PBOC, more private lending support, more reform support but nothing for property purchases.

For other FX moves that are notable today pay attention to EUR/SEK as its testing the 200-day support at 10.27, the rebound in tech shares has helped and the Riksbank minutes tomorrow will be critical in determining if rates move in December or February. The AUD gained on commodity demand as shown by the record trade surplus. The economic data was focused on Australian trade which showed a big jump thanks to LNG and Iron Ore linked to China while the PMI reports were mixed with Japan better, UK worse, Australia lower, China Caixin stable. This leaves the day looking risk-on and happy to be rid of October, though the volumes are thinner due to All Saint’s Day holidays in Europe. Many see the Bank of England meeting ahead as the least important part of the GBP uptick story but the role of rates in driving markets remains the key driver with the US markets locked in on ISM and Jobs as the FOMC focus. Risk today is that the BOE sounds more hawkish than priced with just 60% chance for a hike in 2019. Growth in the UK seems linked to the BOE reaction function and the confidence game of Brexit. GBP is the bellwether for keeping risk-on today similar to the CNY holding the 7.00 line still. GBP holding 1.2650 seems important and opens a test for 1.31 should the USD hegemony shift on the data ahead.

Question for the Day: Is the Phillip’s Curve dead? Many see the only risk to a rally back in November and December coming from inflation – with the impact of tariffs the lesser concern to the FOMC given the focus on jobs and wages. The uptick in the ECI yesterday is important but not sufficient for changing the landscape. The FOMC rate hike for December is mostly priced, but its 2019 that isn’t so obvious.