- The dollar is limping into the weekend
- The UK reported September IP, construction output, and trade
- Norway reported October CPI
- Brazil October IPCA inflation is expected at 2.76% y/y vs. 2.54% in September; Peru’s central bank unexpectedly cut rates 25 bp to 3.25%
The dollar is mostly softer against the majors ahead of the weekend. The Scandies are outperforming, while the Antipodeans are underperforming. EM currencies are mixed. PLN and MYR are outperforming, while ZAR and INR are underperforming. MSCI Asia Pacific was down 0.4%, with the Nikkei falling 0.8%. MSCI EM is down 0.3%, with the Shanghai Composite rising 0.1%. Euro Stoxx 600 is down 0.2% near midday, while S&P futures are pointing to a lower open. The 10-year US yield is up 3 bp at 2.37%. Commodity prices are mixed, with Brent oil up 0.2%, copper up 0.3%, and gold down 0.1%.
The dollar is limping into the weekend. It is down against all the majors this week, with Stockie the best performer over the past five days (up 0.9%) and Aussie the worst (up 0.2%). The dollar has fared better against EM, putting in a mixed performance with BRL the best performer over the past five days (up 1.9%) and INR the worst (down 1%).
The lack of any major US data prints this week was one reason behind the greenback’s lackluster performance. So too was uncertainty about US tax reform. Indeed, that uncertainty will continue into next week. This could lead to further consolidative trade in the coming days.
The dueling tax plans from the Senate and the House came in largely as expected, thanks to many leaked details. The main differences between the two are that the Senate version eliminates the so-called SALT deductions and delays the corporate tax cut a year until 2019. Also, the Senate version keeps the estate tax even as the House would eliminate it over time.
Both sides continue to work towards finding the right compromise. A full House vote is planned sometime next week, while the Senate Finance Committee will start to mark up its version on Monday. Repealing Obamacare’s individual mandate is reportedly still on the table. While repeal would save nearly $350 bln in subsidy costs over a decade, it is a political landmine.
The UK reported September IP, construction output, and trade. IP rose 0.7% m/m vs. 0.3% expected, and was driven by a 0.7% m/m gain in manufacturing. Construction output fell a larger than expected -1.6% m/m, but the trade deficit was a smaller than expected -GBP2.75 bln.
Brexit Secretary Davis will reportedly propose an amendment to the EU Withdrawal Bill that sets in law the UK’s departure at 11 PM GMT on March 29, 2019. This is meant to allay concerns that the Brexit talks will drag on. Note also that Prime Minister May appointed Penny Mordaunt to replace Priti Patel, who resigned this week. Like Patel, Mordaunt is staunchly pro-Brexit.
France reported September IP. It rose 0.6% m/m vs. 0.5% expected. Here, manufacturing was a drag as it rose only 0.4% m/m vs. 0.8% expected. ECB’s Nowotny pushed for an end to QE after September if the economy continues to develop as expected.
Norway reported October CPI. Headline rose 1.2% y/y vs. 1.4% expected, while underlying rose 1.1% y/y vs. 1.0% expected. While the readings were mixed, inflation concerns should remain low. Norges Bank has signaled it is in no hurry to hike rates. Next policy meeting is December 14, no change is expected then.
Brazil October IPCA inflation is expected at 2.76% y/y vs. 2.54% in September. Inflation has bottomed, which supports COPOM’s signal that is slowing the easing cycle and nearing its end. We look for one last 50 bp cut to 7% on December 6.
Last night, Peru’s central bank unexpectedly cut rates 25 bp to 3.25%. Most looked for steady rates but we warned of a dovish surprise. Inflation fell sharply in October to 2% y/y, right on target. The sluggish economy clearly warranted further easing and we see risks of further cuts ahead after this latest move