INSIGHTS

Duncan Donald

Mon, Jun 17


KYLIN TALK | Weekly Markets Update 17.06.19

In the UK the Conservative party leadership race began with the first round of party votes on candidates to succeed Theresa May. The 11 runners were whittled down to just 7, with Andrea Leadsom, Esther McVey and Mark Harper all scoring under the 17 votes required to qualify for the next round, then Friday Matt Hancock chose to withdraw from the race. Boris Johnson is running as clear at this time amassing 114 votes putting him way ahead of the field, putting the competition as his to lose.  He does seem to be keeping a relatively low profile so far in his campaign which has been met with criticism as he avoids what could be considered the “traps” of talk shows and public debates electing to use proxies.

 

Boris has urged the UK to prepare for hard Brexit which contradicts his earlier stance but conveyed that this would not be his ideal scenario but feels the EU must believe the UK will push to that limit if we are to obtain any concessions on a trade deal. His intent to decrease the tax payable by high earners from a threshold of £50,000 to £80,000 has been met with mixed reception naturally dependant on where people sit on the pay scale, but with more unaffected by the pay boost it will certainly be an unpopular move for the majority, especially considering the Brexit costs that need to be plugged.

 

 

Thursday brings the Bank of England’s Monetary policy committee (MPC) where rates are expected to remain on hold with Brexit being a weighing factor the committee holds no bearing in, meaning its likely rates stay at current levels until completion. As expected, after a surge in UK data in the manufacturing sector in Q1 due to Brexit stockpiling, last week we saw the UK’s GDP came crashing down with a 0.4% month on month fall with forecasters predicting it likely data stays weaker until Brexit is resolved.  Further parliamentary votes are scheduled to take place on Tuesday, Wednesday and Thursday this week which should leave us with the final candidates for the next Prime Minister.

 

In the US there is no question that global trade tensions have had a dragging effect on the US economy, with the Labour market already showing a contracting pattern. This has led many to believe that we could see the Federal Reserve about turn on rate path and deliver a rate cut on Wednesday as they meet to discuss US rates. In the last few weeks, there has been no shortage of Fed speakers opening the door to the possibility of cuts this year. But, will Wednesday’s meeting be too soon? There was some strong data from the Retail sector last week which certainly showed one area of strength, so we go into the event with possibilities, the consensus seems to be that they hold off this month, perhaps until after the G20 where President Trump and Chinese Leader Xi look likely to discuss trade and tariffs.

 

 

In the Eurozone Donald Trump attacked the Euro calling it undervalued, giving the Eurozone and in particular Germany a trading advantage over the US.  Whilst the Euro is sitting below its average value since its inception the Eurozone economy is not showing the signs of reaping the rewards of a competitive edge Trump alludes to. The ECB has pushed back rate hikes to 2020 now have to consider if the market will benefit from a further round of quantitative easing. This week we see significant data out of Europe with Economic Sentiment, PMI and Manufacturing data from the collective economies.

 

The Week Ahead:

Monday – A relatively quiet start to the week with UK house Price index from Rightmove. In mid-morning we are to expect the UK Inflation report hearings. In the US session we get the US Empire State Manufacturing Index then towards the US close Consumer Sentiment data from New Zealand.

 

Tuesday – It will likely be a busy start for the Australasian session with the minutes of the last Reserve Bank of Australia meeting where perhaps against consensus they elected to cut rates.  In the European Session we get German Economic sentiment as well as collective Eurozone CPI, Trade Balance and Economic Sentiment. In the US session we receive Canadian Building Permits and US Housing Starts.

 

Wednesday – First up is UK CPI, HPI and RPI inflation data. In the Afternoon more inflation data, this time from Canada. In the evening we have the big event of the week with the US Interest Rate decision from the Federal Reserve were expectation is wide open with the potential for a rate cut from 2.5%. In early morning New Zealand time we get their GDP.

 

Thursday – Another day of interest rate decisions and first up is Japan where rates are unanimously expected to remain unchanged at -0.10%.  After UK retail sales at midday UK time it’s the UK interest rate decision with the UK Monetary Policy Committee expected to remain constrained by Brexit, keeping rates at 0.75% with a unanimous vote.

 

Friday – Starts with a host of PMI data out of the Eurozone bloc and individual sectors, likely the German data will be most significant as they look to shake off the recent slump.  From the UK we have Public Sector Net Borrowing at 9.30. In the North American session, we get Canadian Retail Sales and US Manufacturing and Services PMI data

 

 


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