27th November 2018 Market Update
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?? USD - The Dollar remained steady this morning as quotes from Donald Trump added to concerns around the China-US trade war, which in turn added to the safe-haven demand for the Dollar. Trump declared that he expects to follow through on warnings to increase tariffs from 10 per cent to 25 per cent on nearly $200bn worth of Chinese imports. These latest comments are in direct opposition to the optimism that had been surrounding Trump’s upcoming meeting with Chinese President Xi at the G20 summit in Buenos Aires this week. Separately, investors are now awaiting cues from Fed Chairman Jerome Powell tomorrow as to how many more times the US is likely to raise interest rates as part of this economic cycle. Powell speech is especially pivotal given the recent pullback in expectations for 2019 interest rate hikes; the likelihood of a December 2018 increase remain high.
?? GBP - The Pound is trading slightly lower this morning as the size of the task at hand for Theresa May in terms of convincing Parliament to vote for her Brexit deal, becomes increasingly clear. With the date for the vote now being confirmed as December 11th, Sterling is likely to remain relatively rangebound until any further clarity emerges; that’s not to say we won’t see some volatility off the back of Brexit-related headlines. For example, suggestions yesterday from US President Donald Trump that the current deal could threaten a US-UK trade deal, and that it looks like a ‘great deal for the EU’, have caused a softening in Sterling as yesterday also saw Theresa May fight off criticism from MPs on all sides of the Commons. In response, May is expected to tell politicians and employers in Wales today, that they will have more power after Brexit as a greater amount of policy will be in the hands of devolved parliaments and assemblies.
?? EUR - The Euro has benefitted over the past 24 hours on the news that Italy may yet cut its budget deficit target to as low as 2 per cent, to help appease the European Commission in the face of potential disciplinary procedures and fines. That being said, the single currency is being repeatedly undermined by poor economic data; on this occasion, German Ifo came in weaker than expected which is further evidence of the detrimental impact of Donald Trump’s waging of global trade wars. Separately, Mario Draghi was his usual robotic self at yesterday’s European Parliament Economic and Monetary Affairs meeting; he maintained that the ECB’s asset purchasing program would be brought to an end in December despite weak economic data for the Euro. Euro area GDP growth has slowed this year from 0.4 per cent in Q1 and Q2, down to 0.2 per cent in Q3; Q4 is also expected to be weak. This will keep the Euro on the back foot going forward.
USD: Despite market optimism for the contrary, Trump pours cold water on hopes of a resolution to US-China trade dispute;
GBP: A beleaguered Theresa May moves onto the next phase of the battle to win her Brexit war;
EUR: Despite some small progress being made on the Italian front, weaker growth is limiting the Euro from any significant gains
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