The Day So Far
Yesterday was interesting in that for the first time in a while the equity market was spurred into life after touted profit taking was seen in the Nikkei 225 after the index rose to its highest level in 25-years. Certainly the sell-off was further assisted by headlines pertaining to the delay of US corporate tax cuts but a sizeable move feels somewhat overdue and likely a necessary prerequisite for the next push to record highs which has been the theme throughout 2017.
This then brings us to today and although a second above expectation reading for UK industrial production has brought some reprieve for the GBP the market now eagerly awaits the US entrance to see where we go from here. In terms of the UK, today marks the end of the sixth round of talks between Britain and the EU and reports in the FT this morning suggest PM Theresa May is ready to increase the existing divorce offer of EUR 20bln following the threat yesterday from the EU in reference to a deadline of 2-3 weeks if they intend to have a transitional deal ready for the EU Summit in mid-December. In terms of trading these headlines my baseline scenario is that May will indeed up the offer but even at EUR 30bln that will still be short of what the EU would require to cover the UK’s outstanding commitments. As such, May obtaining a transitional agreement before year-end is growing increasing unlikely, particularly in light of recent political developments within her own party. In short should this roll into Q1 2018 the weight of political uncertainty should begin to weigh more heavily on the GBP but I would remain vigilant throughout as if a deal is struck I would expect the reaction to be a sharp rally in the GBP in the short-term if she can deliver in the coming weeks.
The Day Ahead
Looking ahead there are two data points of interest the first being University of Michigan Sentiment which is the preliminary reading for November. As a reminder. the October headline at 100.7 was the highest since January of 2004 amid more favourable consumers’ assessments of current economic conditions as well as expected economic prospects. Expectations today are for the reading to remain at these lofty heights. The other point of interest is the Baker Hughes rig count which has continued to grow in popularity for energy traders given that the number of US rigs is now at it’s lowest since May.
Check out our morning briefing delivered earlier today by analyst Saif Ali: