Those trying to categorise today’s market as risk-on or risk-off have opted for the latter. The Mexican Peso is weaker despite reports that the US and Mexico are close to signing a new NAFTA deal, as are most of the emerging market high-yielders, including the Turkish Lira and Russian Rouble. Conversely the safe-haven Swiss Franc has made small gains.
The Dollar has struggled for direction, with mixed trade and consumer confidence data seemingly cancelling each other out. The US goods trade deficit widened to a 5-month high of $72.2bn in July, with the 12-month rolling deficit hitting $836bn – it’s highest in almost a decade. This suggests that US merchandise trade was a drag on US growth in July and will not be music to President Trump’s ears. If anything these numbers are likely to consolidate his view that the US is trading at a disadvantage to the rest of the world and should pursue further protectionist measures.
More positively, the US Consumer Board consumer confidence index jumped to 133.8 in August, its highest point since October 2000, pointing to a further pick-up in US retail sales growth from 6.4% yoy in July. Overall US macro data point to robust US GDP growth so far in Q3 but with the Federal Reserve sticking to its mantra of gradual rate hikes Dollar bulls have seemingly been unwilling to add to their long positions in the past 4-5 sessions.
Much has been made today of the fall in the GBP/EUR cross to 1.10, its lowest level in almost a year. The move is being blamed on mounting fears that with time running out the UK could end up leaving the EU without a deal, but the lurch lower in GBP/EUR owed as much to the Euro’s ongoing recovery as it did to Sterling weakness.
The Euro trade weighted index was up another 0.3% today and has appreciated about 2.4% since 17th August to a new multi-year high. The Euro will have benefited from the release of a higher-than-expected German IFO business climate index in August and signs that Eurozone growth may have picked up slightly so far in Q3. But this is more than about marginal data gains, with markets seemingly betting that the Euro is currently a better bet than the Dollar or Sterling.
