What’s been happening?

Pound Sterling – UK Markets 

The pound sterling stayed virtually unchanged against its major rivals on Monday as investors refrained from making large bets ahead of this week’s Brexit summit. Commenting on Brexit negotiations, Northern Ireland’s Democratic Unionist Party (DUP) press officer Sammy Wilson said that a no-deal Brexit was ‘probably inevitable’ and added: “What is on offer from the EU is a far worse than a no deal outcome.” Furthermore, citing unnamed EU diplomats familiar with talks, Reuters claimed that this week’s Brexit Summit was unlikely to produce a breakthrough as the EU would agree to a prejudge future EU-UK trade ties that included a UK-wide EU customs deal. Dismissing these headlines, Prime Minister Theresa May’s spokesman said they were still focused on getting a Brexit deal done in the coming weeks. 

Later in the day, speaking to lawmakers in parliament, PM May said that there had been a great deal of inaccurate speculation about the weekend event. “A Canada-style deal is not on offer for the whole of the United Kingdom, proposals the government has put forward are focused on a free trade deal with frictionless trade,” May further explained. Meanwhile, in letter sent to the members of the European Council ahead of their meetings on 17 and 18 October, European Council President Donald Tusk said that Brexit negotiations have proven to be more complicated than some may have expected and added that the EU must prepare for a no-deal scenario, which was now ‘more likely than ever before.’

US Dollar – US Markets

According to the monthly report released by the U.S. Census Bureau on Monday, retail and food services sales in September increased by 0.1% to match August’s reading and fell short of the market expectation of 0.5%. A separate report revealed that business inventories grew 0.5% to come in line with analysts’ estimates. On a positive note, the Federal Reserve Bank of New York reported that the business activity in the region’s manufacturing sector expanded at a more robust pace than forecasted with the headline general business conditions index improving to 21.1 in October from 19. Later in the day, the U.S. Department of Treasury published its 2018 fiscal year budget report, which showed that the budget deficit rose to its highest level since 2012 at $779 billion as the Trump administration’s tax cuts increased the federal government’s spending and slashed its revenue.

Meanwhile, major equity indexes in the U.S. struggled to extend its recovery following last week’s meltdown and continued to weigh on the greenback. The US Dollar Index, which measures the buck’s value against six major currencies, recorded daily losses for the sixth time in the last eight trading days.      

Euro – European Markets

The shared currency stayed quiet against the pound sterling and recorded modest gains vs the dollar amid a lack of macroeconomic data releases from the euro area. On Monday, Italy’s Deputy Prime Minister Salvini announced that the budget, which was supposed to be submitted to the European Commission, would be discussed on Tuesday instead. Despite this statement, however, Prime Minister Conte notified the press in the evening that the 2019 budget was approved by the cabinet and would be presented to the EC on Tuesday. 

Speaking to reporters on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Bali, Indonesia, the European Central Bank (ECB) policymaker and the head of the Bank of Finland, Olli Rehn, said that the latest core inflation data was somewhat disappointing and argued that the ECB should gradually move to data-dependent rate guidance. Commenting on Italy’s fiscal policy, Rehn stated that the ECB wouldn't take political situations into account when deciding on the monetary policy. 

What’s coming up? 

UK: The UK’s Office for National Statistic will release the monthly Producer Price Index (PPI), Consumer Price Index (CPI), and Retail Price Index (RPI) data on Tuesday. Markets expect the annual core CPI, which strips volatile food and energy prices, to come in at 2.8% in September.

US:  The U.S. Census Bureau will publish the housing starts and building permits numbers on Tuesday.   

EU: The Eurostat’s inflation report will be featured in the European economic docket. Analysts forecast the CPI to remain unchanged at 0.2% and 2.1% in September on a monthly and yearly basis, respectively.