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Asian markets were flat, owing to holidays in China, Hong Kong and Australia.
Global sentiment is on margin positive enjoying a ‘risk on’ which has weighed on the likes of the safe-haven Yen and Franc. Optimism comes after Canadian and U.S. officials reached agreement last night that will allow Canada to join the US-Mexico trade agreement ensuring NAFTA lives on.
However, geopolitical risks may be a factor to watch over coming days amidst speculation that U.S.-China relations might deteriorate further; especially after President Trump recently accused China of meddling in the U.S. mid-term elections.
“An eventual escalation in the U.S.-China trade dispute will weigh heavily on sentiment, so this is a space to watch,” says Daniel Been, Head of FX Research at ANZ.
GBP
There is some data on tap for Sterling at the start of the new week and month.
At 09:30 B.S.T. IHS Markit and the CIPS release the Manufacturing PMI for September which should provide a timely snapshot of how well this sector of the U.K. economy is performing.
The number being expected by markets is 52.5, slightly lower than the previous month’s reading of 52.8.
A beat could help give Sterling a nudge at the start of the final quarter of 2018.
Also out at 09:30 are some lending numbers from the Bank of England. Mortgage approvals are expected to read at 64.05K and the consumer credit release is expected to read at 1.30BN.
While this data can help give a steer on lending in the economy – which is in turn important for overall economic growth – it doesn’t typically tend to have a bearing on Sterling so keep an eye on the Manufacturing PMI instead.
Markets will most likely be more interested in the headlines coming from the Conservative party conference pertaining to Brexit.
Specifically, how will the conference shift Theresa May’s Brexit strategy, if at all.
Chancellor Hammond and Brexit Secretary Raab are both due to deliver addresses today.
The conference comes at a difficult time for Brexit negotiations with both sides apparently unwilling to budge on their redlines, thereby creating a deadlock a mere few weeks ahead of a November deadline.
We will be watching Prime Minister Theresa May’s speech on Wednesday to see whether she has shifted her stance or whether she is digging in. The past two conferences have seen Sterling move in response to her speech and we are wondering if conference 2018 will be any different.
“GBP was weakening back towards 1.30 as the Conservative Party conference only underscored the divisions within the party still about Brexit and demonstrated PM May’s weak position. She doesn’t address the conference until Wednesday, meaning her political opponents can dominate the airwaves until then. I think GBP is likely to weaken further as hopes for a successful negotiation to Brexit fade and the market takes in just how difficult a position the country is in,” says Marshall Gittler at ACLS Global.
EUR
There are also Manufacturing PMI numbers out of the Eurozone due this morning, but at 09:00 B.S.T.
Markets are looking for a reading of 53.3.
Note though that the market impact of this reading tends to be a lesser one than is the case with the U.K. counterpart.
The Eurozone unemployment rate for August will be released at 10:00 B.S.T. and is forecast to read at 8.1%. Again the market impact is likely to be relatively muted.
Keep an eye on Italy. Last week Italian budget negotiations arrived at a deficit of 2.4% of GDP, considerably larger than the level the previous Government targeted.
“Markets didn’t like it, selling Italian bonds and equities and the euro to boot. That’s understandable, given the undeniable pressure on the sustainability of Italy’s fiscal position,” says ANZ’s Been.
USD
There are some important manufacturing data out of the U.S. today.
At 15:45 B.S.T. the Manufacturing PMI for September is due for release with markets looking for a reading of 55.6.
However, markets will be more interested in the ISM Manufacturing PMI for September, due out at 15:00 B.S.T. Here consensus are forecasting a reading of 60.1.
A beat on expectations could well aid the U.S. Dollar’s current run of strength.
Keep an eye on Federal Reserve member Rosengren who is pencilled in to speak at 17:15.
CAD
The Canadian Dollar is one to watch with the currency looking a whole lot more confident on news the United States and Canada finally reached a deal on Sunday to salvage NAFTA as a trilateral pact with Mexico.
The achievement means the three-country, $1.2 trillion open-trade zone survives and takes away a key source of uncertainty for the Canadian Dollar.
In a joint statement, the two nations said the new United States-Mexico-Canada Agreement (USMCA) would “result in freer markets, fairer trade and robust economic growth in our region”.
Negotiators worked frantically ahead of a midnight ET (0400 GMT) U.S. imposed deadline to settle differences, with both sides making concessions to seal the deal.
AUD
The Reserve Bank of Australia kicks off this month’s round of policy decisions today with the Bank universally expected to leave the cash rate unchanged later tonight (05:30 B.S.T Tuesday).
“We expect a generally upbeat tone to be maintained against the background of a very gradually improving labour market and wage picture, with the strong Q2 GDP report providing further support. Other areas of interest will be anything the RBA has to say on the recent round of independent rate hikes from major banks, plus commentary on China/US tariffs,” says Adam Cole, a strategist with RBC Capital Markets.
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