06 December 2019: Brexit and a budget! Music to the market’s ears

06 December 2019: Brexit and a budget! Music to the market’s ears

Brexit and a budget! Music to the market’s ears

06th December: Highlights

  • Election polls consolidate Conservative’s 10-point lead
  • Market girding for a disappointment from NFP data
  • Euro hovers around 1.11 despite dismal data.

Johnson intends to ‘hit the ground running’

It is either clever planning or something a little more sinister, but, so far, the Leader of the Conservative Party, Boris Johnson, as managed to avoid the grilling from the UK’s foremost political inquisitor, Andrew Neil.

Neil’s tactics tend to tie interviewees down when questioned and he often gets answers to questions that other commentators struggle to drive home.

One of the major concerns for the Conservatives at the start of the campaign was how to avoid his gung-ho attitude getting Johnson into situations he would struggle to extricate himself from. So far, apart from the odd wobble, he has outcampaigned the other leaders although that may be due to superior management more than anything overtly political.

Analysts expect a Conservative majority of around fifty seats when the election is held next week, and that prediction has converted into a strong performance from the pound all week. It rose to a high of 1.3166 yesterday, and a close at 1.3163. That was the pound’s eighth higher close in the past nine sessions.

Basically, all that remains is for the Government to avoid any major incidents in the weekend TV political programmes and generally supportive articles in the papers, and if the polls are to be believed, it should be fairly plain sailing next week. The fallout from the election is bound to ruin someone’s Christmas, but with the leaders of the major parties agreeing that this is the most important election in a generation there will be losers as well as winners.

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Overzealous predictions leave the dollar exposed

It is hard to pin down where the prediction that the headline employment number, due for release later today, came from but it if recent data is taken into consideration there may have been a serious overestimation.

It is interesting that in the run up to the last FOMC meeting the data was generally supportive despite an employment report that was somewhat on the weaker side of expectations.

Immediately Jerome Powell and his colleagues had provided very valid reasons why they had; A) decided to keep rates on hold and B) concluded that when the next change took place not only was it not guaranteed to be a cut but felt confident enough to predict steady monetary policy for ‘some time’, the data has ‘turned south’ as have expectations.

Since that meeting, waters have become decidedly muddied, with no degree of certainty that there will be anything of an upwards revision to October’s data and that +180k for November seems extremely optimistic.

As far as trade talks are concerned, there were encouraging words from President Trump and Treasury Secretary Mnuchin yesterday, but traders have become somewhat immune to the comments emanating from the talks and await more solid proposals for how the impasse will be broken..

The dollar index continues to threaten major support at 97.20 reaching a low of 97.36 and closing at 97.39.

Further abysmal data for employment later could see the index test the 97.20, but being a triple bottom on longer term charts, it is unlikely to be conclusively broken at the first attempt.

German factory data abysmal but not ‘that abysmal’

Eurozone Q3 GDP was released yesterday, and it was exactly as Analysts predicted. Growth of 0.2% was achieved in the period between July and September leading to a 1.2% improvement year on year.

The region is not yet out of the ‘recession hot water’ as data released so far this quarter points to a continuing if not accelerating slowdown.

Hopes that the region is bottoming out economically were supported by the release of German factory orders. They fell by 5.5% year on year, which although 0.5% worse than the previous month were 0.6% better than the market had feared.

It is hard to imagine yesterday’s data leading to a stronger currency, but the market remains fairly unpredictable.

The single currency rose against a weakening dollar yesterday, rising to a high of 1.1110, and closing at 1.1108.

Today as attention switches across the Atlantic, the hors d’oeuvre to the NFP is German Industrial Production. Given the fears over the NFP this may the perfect day to hide further bad news.

The market expects production to have contracted by 2.8% last month, up from -4.4% in September. If confirmed this will reinforce the theory that the economy is bottoming out,

The upcoming highlight for the Eurozone is Christine Lagarde’s maiden ECB meeting next week, but that may be overshadowed by the UK election and an intriguing FOMC meeting.

Have a great day!
About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”