Tuesday AM: GBP Eyes Wage Data | EUR: ZEW Survey | AUD: NAB Business Confidence

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Global market sentiment is somewhat improved Tuesday, November 13 on hopes for a de-escalation in the U.S.-China tariff war rose thanks to reports that China's top trade negotiator was preparing to visit the United States ahead of a meeting between the two countries' leaders.

The South China Morning Post reports, citing sources from both sides, that Liu He may visit Washington to prepare for the talks between U.S. President Donald Trump and his China's Xi Jinping on the sidelines of the G20 summit in Argentina later this month.

The news proved positive for the Australian and New Zealand Dollars which tend to benefit when the mood concerning China and global trade improves.

The U.S. Dollar is meanwhile catching a breather from its recent run higher.

Also struggling is the safe-haven Yen which tends to benefit when markets are in the red, therefore today's optimistic tone leaves the currency on the back foot.

GBP

Wage and employment data are due out of the U.K. at 09:30 G.M.T. with markets looking for a 3.0% wage growth in September (with bonus included. Without bonuses included the figure expected is 3.1%.).

A beat on this number could well prove supportive of Sterling.

The three-month-on-three-month employment change is forecast to show jobs growth of 25K with the unemployment rate expected to remain steady at 4.0%.

The Bank of England view wage growth as a sign inflationary pressures are building in the economy and policy-makers stand at the ready to raise interest rates to remedy rising prices.

A side-effect of higher interest rates is a higher Pound.

Currently markets expect one interest rate rise in 2019 but should a Brexit deal be reached, and wages continue to grow, we could well see two or even three rate rises.

This would bode positive for Sterling over coming months.

We do however expect any impact on Sterling from data to be relatively short-lived as the Pound remains firmly in the grip of Brexit headlines.

Overnight we heard Theresa May tell an audience Brexit talks are in the "endgame".

We also heard the E.U.'s chief Brexit negotiator Michel Barnier say a Brexit treaty is "almost ready".

Negotiators have until Wednesday to deliver the progress required to make a November deal possible. A failure here risks dragging Brexit negotiations into year-end and raising the prospect of a 'no deal' Brexit which could see Sterling struggle into year-end.

EUR

Germany is in focus today with the ZEW's economic sentiment and current condition report due.

Markets are keen to see whether the recent slowdown in Eurozone economic activity is permanent and will be looking to today's German data for signs of pickup in the Eurozone's largest economy.

The Current Conditions reading is forecast to be at 65 and the Economic Sentiment is forecast to read at -24.2.

"As uncertainty continues to rattle financial markets in Germany, we expect the November ZEW economic sentiment indicator to drop," says Guy Steer with Société Générale.

Meanwhile, watch headlines out of the Eurogroup meeting in Brussels, scheduled for mid-morning as we would be interested in any headlines concerning the standoff between the E.U. and Italy over the latter's budget proposals.

USD

There is no data to note due out of the U.S. today and while the Dollar has endured a soft start to the day, we expect the currency's dominance to continue until material signs of the trend breaking emerge.

"We believe a combination of the Fed’s policy trajectory, ongoing concerns over global growth, Italy’s budget clash with the European Commission (EC), and Brexit‑related uncertainties will continue to support the USD," says Richard Grace, a strategist with Commonwealth Bank of Australia.

AUD

NAB business confidence fell to a two year low of +4 in October, consistent with growth losing some momentum.

"Business conditions have eased back from the high levels seen earlier in the year but remain well above average. Forward orders (the most reliable indicator of domestic demand) remain a touch above average but significantly below levels reported in H1 2018," report NAB.

Confidence has also deteriorated through 2018, hovering at or below average in recent months.

"Overall, the survey suggests price pressures remain weak across both inputs and outputs, which is in line with official data pointing to prices (and wages) continuing to grow at relatively weak rates," report NAB.

Ahead, the third-quarter wage price index is out overnight.

Markets are forecasting a reading of 0.6% growth quarter-on-quarter, unchanged on the second quarter reading.

The wage price index is forecast to read at 2.3% year-on-year for the third quarter, higher than the 2.1% reading of the previous quarter.

A beat on expectations would certainly bode positive for the Australian Dollar as it would signal to markets that the conditions for an interest rate rise at the Reserve Bank of Australia are in fact improving.

However, in the current foreign exchange environment we expect the Australian Dollar to remain highly dependent on developments in China and overall investor sentiment when it comes to seeking direction.

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