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Following large intra-day volatility, U.S. stock markets closed higher yesterday on the back of new hopes on a resolution in the U.S.-China trade talks ahead of November 30 G20-meeting in Buenos Aires.
U.S. stock indexes surged after a Financial Times report that U.S. Trade Representative Robert Lighthizer has told some industry executives that another round of tariffs on Chinese imports has been put on hold as the two nations pursue talks.
This kind of environment tends to be supportive for currencies linked to China, including the Australian and New Zealand Dollars: it is little wonder then that the two antipodeans continue to outperform.
Emerging market currencies such as South Africa's Rand also tend to enjoy this environment.
U.S. Commerce Secretary Wilbur Ross however toned down expectations saying that all talks ahead of the meeting are preparatory and that they will not directly lead to a bilateral agreement.
According to Ross, the best-case scenario is an agreed framework for continued negotiations but that an agreement before January, when the U.S. is planning to impose another round of $200bn of tariffs, is impossible.
Asian stocks are trading lower this morning and the Yen gained suggesting something of a risk-off tone to markets.
The Pound is nursing its wounds having suffered a significant sell-off over the course of the past 24 hours as it dawned on markets Prime Minister Theresa May would struggle to get the Brexit deal agreed with the European Union through parliament.
However, markets are not yet ready to throw the towel in and hence why the Pound is seen consolidating ahead of the weekend.
We note a number of scenarios that can play out for Sterling from here and would argue its too soon to pronounce the death of May's Brexit plan.
The economic calendar in the U.K. is empty today so we will be watching:
1) Theresa May's interview on LBC radio, the P.M. could be embarking on a publicity blitz to sell her plan
2) A vote of no confidence in the Prime Minister being called. 1922 Chairman Brady almost certainly has more than the required 48 letters calling for a vote of no confidence in May. May is widely expected to win the vote and a no confidence vote being called is therefore not a major risk to Sterling we believe.
Make no mistake: the Pound is fragile and vulnerable in the current environment, we would not expect any rallies to be sustainable and would lean on a downside bias.
Watch European Central Bank (ECB) President Draghi at 08:30 when he is due to deliver a speech at the Frankfurt European Banking Congress.
"Any hints he may give about the pace at which they’re likely to dismantle their extraordinary monetary stimulus, or even how he sees inflation developing, will be of interest to the market," says Marshall Gittler, a foreign exchange strategist with ACLS Global.
Gittler expects Draghi to repeat his usual comment that he expects rates “to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary.”
Any comments on Wednesday’s weaker-than-expected German GDP figures would also be of interest.
Later in the day, Bundesbank President Jens Weidmann, will speak on "From extraordinary to normal – reflections on the future monetary policy toolkit."
Weidmann is a notable opponent to current ECB policy and is widely tipped as being the Bank's next President. What he says tends to carry more weight than the views of fellow board members.
Inflation numbers are due out of the Eurozone at 10:00 B.S.T. These are revisions and therefore unlikely to have a sizeable market impact.
Inflation for October is forecast to read at 0.2% monthly and 2.2% annualised.
The Canadian Dollar is once again subject to political angst now that U.S. politicians are looking to revisit the recently signed trade deals struck between the U.S., Mexico and Canada.
However, there are some near-term drivers on offer in the form of manufacturing sales numbers due out at 13:30 B.S.T.
Markets are forecasting growth of 0.1%, a slight improvement on the previous month's -0.4%.
"Falling exports are probably behind the decline, although petroleum exports seem to be holding up well. CAD has been buffeted by a number of unconnected bits of bad news – the dramatic plunge in oil prices and Wednesday’s comments by a Democratic Congressman that the US-Mexico-Canada (USMCA) trade agreement, aka NAFTA 2.0, has to be renegotiated. Against that background, I think any other bad news for CAD is likely to be taken as yet another chance to sell. CAD-negative," says Gittler.
We have some second-tier data out of the U.S. at 14:15 in the form of industrial production data.
Monthly industrial production is forecast to read at 0.2% for October, down on September's 0.3%.
"US industrial production is forecast to slow somewhat on a month-on-month basis, but remain positive for the fifth consecutive month. That’s pretty reassuring, even if the pace of increase is slowing – usually we could’ve expected a mom decline by now. I think this figure should confirm that the economy is managing a “soft landing” as the Fed raises rates and should therefore be seen as positive for the Dollar," says Gittler.
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