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USMCA replaces NAFTA, CAD rises - EMEA Brief 1 Oct

Guest IG-Andi


  • The U.S. and Canada agreed to a trade deal that would preserve a three-way bloc with Mexico, setting the stage for their leaders to sign the accord by the end of November. The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA.
  • Mexican peso and Canadian dollar gains as uncertainty is lifted and greater stability takes hold of the Americas.
  • The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels.
  • In the UK this week the Conservative party is holding its annual conference. Brexit talks are bound to be high on the agenda and could cause some volatility as the narrative continues to play out. Hammond could also add flavour to this years budget which could hint at trading opportunities to come.
  • Tuesday sees a speech by Jay Powel. After the Feds interest rate rise last week speculators will be looking at any hints they have on monetary policy.

Asian overnight: A somewhat mixed session overnight has seen the Japanese markets push into the green, while the Australian ASX 200 provided the opposite move in the absence of Chinese and Hong Kong markets due to national holidays. Weekend data from China did little to raise confidence for Australian stocks, with the manufacturing PMI and Caixin manufacturing PMI both declining. The non-manufacturing PMI survey did rise, yet Australian concerns are certainly focused on the manufacturing sector as a lead to how their exports markets will fare going forward. Finally, the Japanese Yen declined on the news of weaker figures for the Tankan manufacturing index, non-manufacturing index, and manufacturing PMI.

UK, US and Europe: The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. Italian Finance Minister Giovanni Tria is certain to face questions about the nation’s 2019 spending plan even though it’s not on Monday’s Eurogroup agenda in Luxembourg. 

Theresa May faces the battle of her political life to retain control of the governing Conservative Party as top Tory politicians undermined her leadership. After arch rival Boris Johnson went for the jugular, Chancellor Philip Hammond swept in to defend her in an increasingly chaotic political scene.

Looking ahead, we have a host of economic PMI releases from Europe, although for the most part they are final readings. That being said, the UK manufacturing PMI is one of the few figures that represents the first release for the month, with markets looking for a marginal decline. That PMI theme carries into the US session, with manufacturing figures from both Canada and the US. Given the breakthrough in NAFTA negotiations, expect to see continued volatility for the Canadian dollar and Mexican Peso. 

South Africa:  The Jse Allshare Index is expected to open firmer amidst today's positive global equity market sentiment. Commodity prices are trading marginally lower and the rand slightly weaker as the dollar finds some short term strength. BHP Billiton is down 0.1% in Australia, suggestive of a flat to slightly lower start for local diversified resource counters. Today's economic calendar is light in terms of scheduled data releases, with UK and US manufacturing data perhaps the most relevant catalysts to look out for today.  

Economic calendar - key events and forecast (times in BST)


Source: Daily FX Economic Calendar

9.30am – UK mfg PMI (September): survey forecast to rise to 53.8 from 52.8. Market to watch: GBP crosses

3pm – US ISM mfg PMI (September): forecast to fall to 60.5 from 61.3. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Tesla likely to dominate headlines today as the SEC ruling that Elon Musk should stand down as chairman (but maintain his CEO position).
  • Nielsen Interim CEO of Danske as Borgenfor relieved following money laundering scandal.
  • Assura continued to grow during the first half of the year to 30 September 2018, completing the acquisition of 39 medical centres and two developments at a combined cost of £108.2 million.
  • HNA Group Co. shrinks debt by $8.3 Billion. More needed to regain trust of investors.
  • TMX Group earnings release above expectations.

Barclays upgraded to buy at Berenberg
Castings upgraded to buy at Peel Hunt
Thomas Cook upgraded to hold at Berenberg
Kaufman & Broad raised to hold at Kepler Cheuvreux

AB InBev downgraded to hold at Jefferies
EasyJet downgraded to underperform at Bernstein
Sampo downgraded to neutral at JPMorgan
Telecom Italia cut to underweight at Barclays

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