Sterling Pounded as Risks of No-Deal Brexit Rise

  • UK Prime Minister May is facing a wave of resignations; the odds of a no-deal Brexit have risen significantly
  • UK reported weak retail sales in October
  • The European Commission (EC) must now decide how to deal with Italy’s defiance
  • During the North American session, US October retail sales will be reported
  • Australia reported strong October jobs data
  • Indonesia and Philippines hiked 25 bp; Mexico expected to follow suit and hike 25 bp

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Dollar Firm as Risks Pile Up

  • The dollar remains bid as the usual drivers remain in play
  • The highlight today will be the US October CPI report
  • Oil is making new lows for this move as recent Saudi plan to cut output next year was just a speed bump
  • Eurozone reports Q3 GDP; UK reports October CPI
  • Japan reported Q3 GDP; China reported October retail sales and IP
  • Mexican assets remain under pressure as political risks are rising
  • Bank of Thailand kept rates steady, as expected; Colombia reports September retail sales and IP

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From the Securities Lending Trading Desk

In the US, Sessions, who had been vehemently against marijuana legalization, announced his resignation on Wednesday. Shares in Toshiba Corp surged in Tokyo trading after it announced plans to reinstate its dividend and exit a troubled LNG investment. Potential M&A activity is heating up in the UK.

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Dollar Consolidates as Equity Markets Stabilize

  • The dollar is consolidating its recent gains as global equity markets try to stabilize
  • Italy must respond to the EU’s request to revise its draft budget proposal by today
  • UK reported labor market data
  • During the North American session, the US reports October budget data
  • China reported slower than expected money and loan growth in October
  • We would downplay reports of talks between Mnuchin and Liu; EM should remain under pressure
  • Poland reports September trade and current account data; Brazil September retail sales are expected to rise 1.6% y/y

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Drivers for the Week Ahead

  • The dollar rally has resumed in the wake of the FOMC meeting last week
  • The US reports October budget data, CPI, and retail sales this week
  • Italy must respond to the EU’s request to revise its draft budget proposal by Tuesday; Eurozone reports Q3 GDP Wednesday
  • The UK has a busy data week; Brexit uncertainty has intensified with the resignation of another minister
  • China reports money and new loan data this week, but no date has been scheduled
  • The central banks of Thailand, Indonesia, the Philippines, and Mexico meet this week

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EM Preview for the Week Ahead

EM FX has come under renewed pressure as the dollar staged a broad-based recovery after the FOMC meeting. Data this week is likely to show continued robustness in the US economy, cementing a December hike by the Fed. Elsewhere, concerns about China, Italy, and Brexit are likely to weigh on market sentiment. We remain negative on EM.

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Dollar Firms as Risk Off Sentiment Picks Up

  • Risk off sentiment is picking up
  • The FOMC left rates steady yesterday, as expected; it painted a fairly upbeat picture
  • To repeat, we think the US drivers that have proven dollar-supportive this year will reassert themselves
  • Italian officials are pushing back against EU criticism of the budget
  • EM FX remains under pressure as the dollar recovers and risk off sentiment picks up

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Dollar Firms as US Rates Edge Higher

  • The two-day FOMC meeting ends with a decision today at 2 PM ET
  • The US drivers that have proven dollar-supportive this year will reassert themselves
  • China reported stronger than expected trade data for October
  • The EU sees Italy’s budget deficit rising above the -3% of GDP limit
  • RBNZ kept rates steady at 1.75%, as expected; Bank Negara kept rates steady at 3.25%, as expected
  • MXN has been underperforming this week; Peru central bank is expected to keep rates steady at 2.75%

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