Duncan Donald

Mon, Feb 25

KYLIN TALK | Weekly Markets Update 25.02.2019

Last week brought a notable pause in financial markets. In a week that started with a US holiday, there was certainly a cautionary feel as the major currencies settled into relatively tight ranges for the week.  The data received last week offered little to stimulate markets and of the many geopolitical issues, none really made significant headlines this week.  Global equities did however continue to gain, albeit at a moderate pace with the S&P and Dow still pushing to new highs for the year.

In the UK, in terms of tangible progress on Brexit, we remain no further forward regarding direct negotiations to find a deal with the European Commission.  The usual round of rumours naturally played out, in particular a story Thursday citing Spanish sources that negotiations were going well, and that it was likely a deal could be reached by the end of February, taking the Pound up to the 1.3100 highs versus the dollar. This was, however, swiftly denied and the market normalised.

Despite the evident lack of tangible progress, the Pound does remain relatively strong, notwithstanding the impending deadline and no agreement.  This can partially be attributed to the formation of “The Independence Group” over the past week, a new pseudo party made up of members of both Labour and Conservative parties. It has been born out of frustration with the current leadership and the week has seen numerous members of the opposing parties joining forces to collaborate in policies they believe are better suited for the UK.  Whilst one would generally assume defections against the Prime Minister would bring negative impacts, the key policy of the new party is an extension of the Brexit deadline. With the Prime Minister pushing for no extension, and with a parliamentary majority of just 8 votes, this could mean that majority could be lost in future votes. This could lead to parliament having more control, opening the potential for extensions in negotiations, a referendum and even a general election, all of which are deemed as more positive for the UK’s relationship with the EU in the short to medium term.

Over the last few weeks, Forex markets have seen the Australian Dollar come under great pressure as the impacts of trade tensions have impacted the Australian economy. In particular, a struggling housing market has been a key issue, leading to the Reserve bank of Australia to open the door to lowering interest rates. Last week there was a further blow to Australia as Asian orders for their coal were cancelled, seeing the Australian Dollar and Australian mining stocks take a significant negative hit. All eyes will be on Australian data this week, as the markets await some positivity to support the currency above the critical 0.7000 level against the US dollar.

Stateside, it was a quiet week.  Even the release of the last Federal Reserve Meeting Minutes failed to offer any stimulus to the markets, with Minutes broadly consistent with the verbal updates that are regularly being delivered.  For now, the expectancy of two further Federal Reserve interest rate hikes following on from the four seen in 2018 remain off the table, as we await some clarity on global growth concerns led by trade disputes, Brexit and Eurozone growth forecasts.  Negotiations seem to be developing well on the trade dispute side, with Trump’s negotiating team and their counterparts seemingly happy with progress, with talk of a tariff-free period in which to complete the negotiations. The Federal Reserve seem content, however, with due patience to see the completion of the talks before re-engaging with possible interest rate hikes.

This week ahead we have significant US data with GDP released on Thursday and Manufacturing data on Friday, whilst we hear from Federal Reserve leader Powell on Tuesday.  Notably, this week we could start to hear more from Special Council Member Robert Muller as his probe into ex-Trump campaign manager Paul Manafort begins in earnest. Naturally, this could potentially be damaging for the President if the crimes implicate his knowing or understanding of these practices whilst in his employment.


The Week Ahead


Monday - We hear from the Head of the Bank of England Mark Carney at a Press conference in London at 10am UK time. In the afternoon we get US Wholesale Inventories


Tuesday - Again we hear from Mark Carney this time at the Treasury Select Committee where he gives an update and justification for the current levels of UK inflation. In the US, 3pm brings firstly Consumer Confidence data but also, we hear testimony from the Federal Reserve’s Jerome Powell


Wednesday - Low-level Money supply data from the Eurozone is realised in the morning. The main data comes in the afternoon with Canadian CPI, the most important of the inflation releases


Thursday - Big data early in the Asian session with New Zealand’s Business Confidence and Australian Capital Expenditure from the Private sector. We also see Chinese Manufacturing PMI Data and Japanese Housing Stats.  US quarter on quarter GDP comes in the afternoon, followed by Chicago PMI


Friday - PMI data numbers across Europe with France, Italy, German and Eurozone numbers all released. At 9:30am we see the UK Manufacturing PMI and Net lending data. In the afternoon session we see Canadian GDP data. Stateside we get Core PCE and Personal Spending then ISM manufacturing PMI and Consumer sentiment data.