INSIGHTS

Duncan Donald

Mon, Sep 2


A week of relative calm amidst the storms

The trade negotiations between the China and the US remain the driving factor for global markets, as we have seen throughout the summer. The volatility however dissipated in the past week into the month-end period. The week of relative stalemate in the ongoing negotiations between the nations facilitated a consolidation in global assets, and despite equity markets remaining poised for the next Trump tweet we have seen solid recoveries across most developed economies as risk and safe haven trading was able to drift out of focus. However, with new tariffs kicking in as of the 1st September, the resumption of trade talks will be very much in focus with US President Donald Trump noting over the weekend his desire to talk after these Tariffs were active.

 

 

In a quiet week in the markets last week, the spotlight drifted away from the trade negotiations and focussed more on the impending Brexit, with Prime Minister Boris Johnson’s Governments announcement of their intention to prorogue Parliament. This process allows the suspension of Parliament in a defined period and will encompass the majority of the period between now and the Brexit deadline on the 31st October. This action will limit the ability of opposition parties and block the actions of the PM.  Such action is deemed undemocratic in not allowing the people and their elected members of parliament the opportunity to oppose the actions of the leader. Naturally, the prorogue has caused great upset and Members of Parliament and the general public in the press, on social media and significant demonstrations seen across the U.K. at the weekend.

 

 

Parliament does return this week for a short period before the prorogue kicks in. It is thought a parliamentary vote could take place as early as Tuesday whereby ministers will get the chance to vote against Boris’s actions, reports over the weekend show that the PM has threatened to expel any of his party members who vote against him as he seeks to maintain the slimmest of majorities he holds in Parliament. Whilst his recent actions are clearly to strong-arm the EU into the belief that the UK will be prepared to walk away, again we heard from the EU’s Brexit negotiator Barnier over the weekend who reiterated that the contentious Irish backstop must remain.

 

In a continuation of the recent trend government bond markets remain very strong, as investors seek a less risky alternative amid geopolitical tensions and fear of a global equity market downturn. The last week has brought German government bonds to record low yields, even in the US their government bonds are approaching multi-year lows. Furthermore, US yield curves in the main markets the 2-10 year and 3 month-10 year timeframes have increased inversion as we come into month end. The global bond market trend must be closely followed as recent low yield and inverted adjustments seen in August were the driving force  for equity downturns which effected all tradeable global markets.

 

Macroeconomic focus

 

Monday – With a US Bank holiday with Labor Day US markets will be closed. The morning brings firstly Asian then European and UK Manufacturing Purchasing Managers Index (PMI’s)

 

Tuesday – The long-awaited interest rate decision meeting from the RBA (Reserve Bank of Australia) is first up in the Asian session. In the US session its US Manufacturing Purchasing Managers Index (Markit and ISM) Later in the US session the Federal Reserve’s Rosengren speaks.

 

Wednesday - Global Service and Composite Purchasing Managers Index (Markit), EU Retail Sales come in the morning session. At 3pm we get Bank of Canada Meeting and rate decision. There are also several US Federal reserve speakers

 

Thursday – In the morning we get a gauge of German Factories. In the US session we get ADP Employment change and US Services Purchasing Managers Index (Markit and ISM)

 

Friday - German Industrial Production in the morning. In the afternoon US Employment/Unemployment and Average earnings data, as well as a speech from Federal Reserve Chair Jerome Powell.


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