Major currencies rebounded from yesterday’s lows vs US$ as political risks in Italy and UK eased investors concerns. In Asia, Hong Kong leader announces withdrawal of controversial extradition bill, which was a key demand for protestors. HK stocks rallied 4% on the news. Chinese CNY recovered from its 11 ½ year low. Uncertainty over the resumption of Trade talks remain as US/China have yet to set a date to meet.
The Bloomberg Nanos Canadian Confidence Index posts biggest drop since Nov18. The Bank of Canada is expected to leave rates unchanged this month but to open the door to future rate cuts as the ongoing trade tensions will impact the Canadian economy. Oil prices firmed slightly and expectations that rates remain unchanged helping the C$ to strengthen vs US$.
Euro zone business growth was a slightly better-than-expected last month but still remains sluggish. The focus now shifts to the European Central Bank meeting next week which is expected to lower interest rates hoping to offset the slowdown caused by the ongoing U.S.-China trade war. Euro remains vulnerable to further weakness, bias remains to sell Eur on any rallies.
UK appears to be between a rock and a hard place. Yesterday the UK PM lost his majority and expels 21 conservatives who voted against No-Deal Brexit. GBP rallied vs US$ as investors saw a lower risk of a no-deal Brexit after the PM’s defeat by Parliament. Expect more GBP volatility as the Brexit saga isn’t finished yet – 57 days to 31Oct deadline.