There were few tier-1 macro data out today for markets to sink their teeth into but a stronger Sterling and a weaker Australian had decent and contrasting moves. Markets seemingly largely ignored the second estimate of US GDP growth which saw the preliminary estimate of 4.1% qoq annualised for Q2 revised marginally higher to 4.2%, with the Dollar trade weighted index broadly unchanged today. Ultimately these are now “old” data and markets will be focussing on US growth in Q3 and beyond.
The AUD/USD cross is down 0.7% today, below 0.73 for the first time since 23rd August. This follows news that Westpac Bank, Australia’s second largest lender, had hiked its mortgage rates for both owner-occupier and investor borrowers independently of the Reserve Bank of Australia which has kept its policy rate unchanged at 1.5% since early 2016. Westpac Bank cited a “sustained increase in wholesale funding costs” as the reason behind the out-of-cycle hike. The concern is now that Australia’s remaining Big Four banks – the CBA, ANZ and NAB – are likely to follow suit which would in turn reduce the likelihood of the RBA hiking its official policy rate in the short-to-medium term.
Sterling, which had been struggling for traction in an onslaught of Brexit-related news in recent weeks, got a boost today after chief EU negotiator Barnier said that the EU was prepared to offer the UK a deal that had not been seen with any other country. This would have been music to Prime Minister May’s ears as she has been pushing for a bespoke post-Brexit deal and is keen to avoid a no-deal scenario.
However, Barnier’s comments need to be taken with a pinch of salt. For starters, there is still no guarantee that the UK and EU will be able to agree on a deal within the next 2-3 months. Second, given that there is no precedent for a member state leaving the EU, that the UK has a very large service sector and that the United Kingdom is made up of four constituent countries (including Northern Ireland) it was always likely that if a deal was reached it would not be a copy-and-paste of deals which the EU currently has with other countries such as Norway or Canada.
Third, a bespoke deal does not imply that the UK will be able to cherry pick the best components of its current arrangement with the EU – a point which Barnier and other senior EU officials have repeatedly emphasised. Therefore, a bespoke deal for the UK does not imply that the deal will in net terms be good for the UK, let alone better than the current arrangement in place. Finally, the corollary is that the British Parliament could still vote against the deal put in front of them, particularly as popular opinion polls suggest that British voters would prefer the UK to remain in the EU or to leave without a deal over accepting the deal which Theresa May presented a few weeks ago.
