Duncan Donald

Mon, Sep 17

Weekly Markets Update - 17/09/2018

We open the week with stocks trading firmly on the back foot starting in Asia and now filtering into the European Session and futures of US stocks pointing to lower. Emerging markets currencies are also suffering with the news that Donald Trump is expected to proceed with additional tariffs on $200 Billion of Chinese goods.  Naturally, it is expected that such extreme actions will be met with retaliation from China, there are rumours to that affect circulating currently. 

This act by Trump, certainly heightens what could be a very interesting speech from China’s Premier Li at the Davos Summer meeting on the 20th and 21st. Li is one of the keynote speakers and all eyes will be on him, as the markets await his thoughts on economic growth and trade war. Both of these factors have the Yuan trading back towards the PBOC’s pain threshold in $/CNY just below key 7.0000 level.

It has been a stark turnaround in a week where Trump opened the door to a meeting with China for discussion and progression of the trade negotiations. Following these latest developments, as the Wall Street Journal alludes to, China will not wish to negotiate with a “gun pointed to its head”.  It looks like we are likely to continue with US strong arm tactics until it perhaps politically suits Trump to strike a deal, and ‘save the day’ ahead of the November Midterms. A trait that he has continually tried to project during his leadership.

The latest developments bring further pressure on Turkey after they had a relatively positive week last week. This followed the Central Bank showing the strength and ability to act appropriately to deal with their currency devaluation. They hiked the Repo rate by 625 Bps beyond the expected 325 Bps taking rates to 25%.  The markets were impressed by the Central Bank, especially given that just hours before the meeting the President Erdogan had expressed discontent with hiking rates, causing a 3% devaluation of the Lira.

As expected both the Bank of England and the European Central Bank elected to leave rates unchanged in their policy meetings last Thursday. The ECB stuck to the same policy theme we heard last month, with expectations remaining aligned for an ending of asset purchases in November, and no ‘lift off’ on rates until Summer 2019 as they maintain their cautious approach. 

In the UK, naturally Brexit continues to dominate monetary policy and the headlines. Over the weekend in the press London Major Sadiq Khan called for another Brexit Referendum sighting concerns over the deal Mays government is negotiating.  There were some glimmers of positivity for the UK as German and Austrian Ministers called for a workable deal for the UK and sources claimed that the EU was considering accepting the UKs Irish border plan. Overall, last week was a good week in the Brexit negotiations, EU negotiator Barnier talked positively that a deal can be reached within the specified timeframe that positivity was reflected in the pound’s performance.

In the week ahead, we have a relatively light week of data globally.

In the UK- Watch for Inflation data on Wednesday which is expected to show a downward trend and then Retail sales on Thursday.

In the EU – Construction data on Wednesday and Consumer Confidence on Thursday before Manufacturing and Service PMI’s on Friday.

In the US – Housing Starts and Building Permits on Wednesday

In China – Premier Li’s address at the Davos forum should offer a strong insight into China’s views on Economic growth and Trade War