INSIGHTS

Duncan Donald

Mon, Nov 11


Optimism in Trade Negotiations - But is it premature?

Last week’s movements were focused on the US/China trade negotiations, with the markets in the majority centring on positive sentiment from both sides.  In the early part and midweek, we were hearing positive sentiment from both sides with it seeming ‘phase one’ was all but signed and it is looking foreseeable that tariffs could be a thing of the past as we move into 2020. This brought positivity to ‘risk’ assets, with the stock markets buoyant and the US indices hitting new highs. The safe haven of gold collapsed, as flight to safety began to look unnecessary and the CNY (onshore Chinese Yuan) dropped back under 7.0000 against the US Dollar. The theme was also replicated in the bond markets as prices dropped bringing yields higher as the positivity played out.

As always with US President Donald Trump, in a series of tweets, concerns started to raise as he stated that China wanted a deal, but he hasn’t yet decided whether to give it to them, undermining officials of both sides as he sought to gain the dominant hold of the negotiations. Whilst this jitter in the discussions did spook the markets, they are becoming accustomed to this all to obvious power play from Trump, and the pullbacks at this stage remain relatively light, even the fact the final face to face negotiations may be delayed from November to December, as the nations seek to set a venue for the talks brought limited price action.

As the US economy continues to show resilient strength following on from the beat in US employment data two weeks ago, last weeks ISM and PMI data again beat expectation pressure remains on the President, as things seem to be intensifying in the ongoing impeachment trial. As the President almost daily protests his innocence on Twitter for what he’s calling ‘a witch hunt’ concern grows that the evidence against him could well be damning and lead to the end of his tenure.

In the UK, as the election campaign begins in earnest, it was a bumpy start from the leading Conservative party with some disastrous public appearances and speeches from high ranking members of his team and Boris Johnson himself. Opposition leader Jeremy Corbyn is also coming under pressure as he publicly seems reluctant to deliver his Brexit stance. The latest polls still have the Conservatives in the lead as we head to the elections on the 12th December. With the Brexit volatility easing as the focus lies with the countries leadership it was back to monetary policy to move the markets at the Bank of England interest rate-setting committee on Thursday. Mark Carney’s MPC voted 7-2 to leave rates unmoved for this month, and whilst no change was expected, the fact that 2 members favoured a cut did shock the market and brought immediate heavy selling of the pound testing the 1.2800 level against the US Dollar.

In the week ahead we get GDP data out of the UK, Japan and Eurozone. On Wednesday US Federal Reserve Chairman Jerome Powell addresses congress and on Thursday we get the interest rate decision from the Reserve Bank of New Zealand. Again the dominating factor for markets this week will be trade negotiation progression and political posturing and polls for the UK election. 

Monday:

  •         Machinery Orders – Japan
  •         Vehicles Sales – China
  •         GDP Growth Rate Preliminary – UK
  •         Industrial Production – UK
  •         Construction Output – UK

Tuesday:

  •         Employment Change – UK
  •         ZEW Economic Sentiment – Eurozone
  •         ZEW Economic Sentiment – Germany
  •         Redbook - US

Wednesday:

  •         Inflation Rate – UK
  •         PPI – UK
  •         Retail Price Index – UK
  •         Industrial Production – UK
  •         10-yr Bund Auction – Germany
  •         Inflation - US

Thursday:

  •         GDP Growth Rate – Japan
  •         Unemployment Rate – Australia
  •         Industrial Production – China
  •         Retail Sales – China
  •         GDP Growth Rate – Germany
  •         Retail Sales – UK
  •         GDP Growth Rate – Eurozone
  •         Continuing & Initial Jobless Claims - US

Friday:

  •         House Price Index – China
  •         Industrial Production – Japan
  •         Inflation Rate – Eurozone
  •         Retail Sales – US
  •         Manufacturing Production – US
  •         Capacity Utilization – US
  •         NY Empire State Manufacturing Index – US


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