· The British pound boomeranged on Thursday following Prime Minister Boris Johnson’s call for a national election, plunging then recouping some losses to land half a percent lower on the day against the dollar.
Johnson said on Thursday he was asking parliament to approve a national election on Dec. 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union. In a letter to opposition Labour leader Jeremy Corbyn, the prime minister said he would give parliament more time to approve his Brexit deal but that lawmakers must back a December election.
Although uncertainty about Brexit has hurt the pound, the currency has been bolstered in October as the chances of a no-deal exit have been all but eliminated. It was against that backdrop the pound retraced its initial losses after Johnson announced his third attempt to force a snap poll. The pound was last down 0.575% to $1.285. It is currently up nearly 5% this month.
After surging to a 5-1/2 month high on Monday, the pound has come back under pressure after British lawmakers blocked Johnson’s plan to push through a withdrawal agreement and get the UK out of the EU on Oct. 31.
The dollar index benefited from the move in sterling, last up 0.16% against a basket of rival currencies at 97.65 .DXY.
The euro was 0.21% lower at $1.111, though it had already sunk against the dollar prior to Johnson’s announcement. Despite some optimism from Mario Draghi’s final news conference as president of the European Central Bank on Thursday, the euro fell, pulled down by business surveys which point to stagnating economic momentum in the euro zone.
· The European Central Bank (ECB) kept rates unchanged on Thursday, in what marked President Mario Draghi’s last monetary policy meeting at the institution.
The central bank also kept its forward guidance unchanged, suggesting that its main interest rates will remain at their current or lower levels until there’s strong evidence of a pick up in prices. The euro traded fairly flat, at $1.1112 against the dollar.
“Incoming economic data continue to point to moderate, but positive growth in the second half of this year,” Draghi told reporters Thursday afternoon. He explained that weakness in international trade was denting manufacturing activity in the euro area, as well as business investment.
The ECB expects a gross domestic product rate for the region of 1.1% this year and 1.2% in 2020. It also forecasts a headline inflation rate of 1.2% and 1% for 2019 and 2020, respectively. The ECB’s mandate is to keep inflation “below but close to 2%.”
The euro zone is seeing lower growth rates on the back of global trade tensions, a weaker manufacturing sector, and other economic uncertainties, such as Brexit.
· Mario Draghi, the outgoing president of the European Central Bank, has warned that slowing global growth and Brexit uncertainty pose a risk to growth in the eurozone economy amid concerns that Germany remains on the brink of recession.
· European Central Bank President Mario Draghi told his successor on Thursday to “never give up” on propping up the euro zone economy in the face of a worsening outlook and little help from governments.
At the last press conference of his eight-year tenure, the man credited with saving the euro from collapsing kept the door open to even more easy money, days before he hands the reins over to Christine Lagarde on Oct 31.
· Prime Minister Boris Johnson called on Thursday for a general election on Dec. 12 to break Britain’s Brexit impasse, conceding for the first time he will not meet his “do or die” deadline to leave the European Union next week.
Johnson said in a letter to opposition Labour leader Jeremy Corbyn he would give parliament more time to approve his Brexit deal but lawmakers must back a December election, Johnson’s third attempt to try to force a snap vote.
· European Union envoys to Brussels will discuss on Friday the length of another delay to Brexit, with an official from the bloc saying the choice was between 3 months and a “two-tier” lag but warning that a decision might not come just yet.
· The Federal Reserve likely will cut interest rates next week, but in doing so will make a pair of adjustments aimed at signaling that the current easing cycle could be over, according to a Goldman Sachs forecast.
Markets widely expect the policymaking Federal Open Market Committee to approve a quarter-point reduction at the Oct. 29-30 meeting that will take the target range for the funds rate down to 1.5% to 1.75%. Goldman concurs, assigning a 95% probability of a cut. The rate applies to what banks charge each other for overnight lending, but influences a broad swath of consumer debt as well.
However, that could be it for a while.
· The Federal Reserve Bank of New York is boosting the size of the cash injections it can make into overnight borrowing markets.
The New York Fed on Thursday started offering at least $120 billion in daily operations in the market for repurchase agreements, or repo, up from $75 billion. The amount offered for term repo operations on Oct. 24 and Oct. 29 was increased to at least $45 billion, from $35 billion.
The increase was announced as demand has grown for the daily liquidity infusions from firms seeking to have enough cash on hand to cover seasonal funding needs.
· Business decision-makers in Asia Pacific cite the prospect of a global recession and the impact of trade tariffs as the biggest risks for their companies in the next six to 12 months, according to a survey from J.P. Morgan.
Around 30% of chief financial officers and group treasurers in the region belonging to 130 global companies said they felt a potential global recession posed the biggest risk to their businesses in a poll conducted at the 2019 J.P. Morgan Asia Pacific CFO and Treasurers Forum in Shanghai.
· Vice President Mike Pence on Thursday denied that the U.S. is seeking to “decouple” from China, despite “the many challenges we face in the U.S.-China relationship.”
“The United States does not seek confrontation with China,” Pence said in a speech on the future of the two countries, according to excerpts of his prepared remarks. “We are not seeking to contain China’s development.”
Yet Pence added a hawkish caveat.
· South Korean consumers’ inflation expectations fell to a record low in October for the third straight month, a survey from the Bank of Korea showed on Friday, underlining concerns that weakness in consumer price growth would persist.
Consumers’ median inflation expectation for the next 12 months fell to 1.7% in October from 1.8% in September, the lowest since the data release began in February 2002. The three months of declines is the longest streak in more than six years.
· Oil prices extended their gains on Thursday, with Brent rising above $61 a barrel as a surprise drop in U.S. crude inventories and the prospect of further market-supporting action by OPEC and its allies offset some concern over the outlook for demand.
Brent crude gained 55 cents to settle at $61.74 per barrel, having risen 2.5% on Wednesday.
West Texas Intermediate (WTI) crude rose 26 cents to settle at $56.23, adding to the previous session’s 2.8% gain after data showed that U.S. inventories dropped by 1.7 million barrels last week.
Since January OPEC, Russia and other producers have implemented a deal to cut oil output by 1.2 million barrels per day until March 2020 to support the market. The producers meet on Dec. 5-6 to review the policy.
Reference: CNBC, Reuters, The Guardian
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