3rd December 2018 Market Update
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🇺🇸 USD – As far as the overall economy is concerned, the big news out this weekend came out of the G20 summit in Argentina where Xi Jinping and Donald Trump were able to come to an agreement to stop the US from increasing their current tariffs on $200bn worth of Chinese imports. Instead, the two parties will enter new trade negotiations with the goal of reaching an agreement in 90 days to help appease US concerns about forced technology transfer and intellectual property protection. The reason this news is so relevant for the Dollar is that prior to this weekend, this ongoing trade spat had caused concerns around global growth. With a potential resolution on the cards, there will likely be an increase in the willingness of investors to take riskier investments which would mean withdrawing money invested in cash, thereby weakening the Dollar due to a fall in as safe-haven demand. Looking ahead this week, the big event for the Dollar will be the testimony of Federal Reserve Chairman Jerome Powell who is due to visit Congress on Wednesday. Short term, the Fed is widely expected to raise rates later on this month while its forward guidance has indicated that 2019 will see a further three rate rises. This should keep the Dollar well supported, especially given that the underlying US economy remains strong and this should be backed up by this week’s data releases. In addition, this Wednesday – US markets will remain closed after Trump designated it a national day of mourning, following the death of President George H W Bush who passed away on Friday.
🇬🇧 GBP – As far as Brexit goes, we are seeing the government continue their tactic of drumming up fear around the impact of a ‘No-Deal’ Brexit, which has been touted as the likely outcome if MPs don’t back Theresa May’s Brexit agreement on December 11th. This weekend, the latest mouthpiece was Environment Secretary Michael Gove who said that while Mrs May’s deal was not perfect, the potential risk of another referendum could mean that there would be no Brexit at all. In addition, this morning’s news was focused on how the Labour Party were attempting to topple the current government by forcing a general election if MPs reject May’s deal. Failing that, Jeremy Corbyn’s party will likely seek support in the Commons for a second referendum on Brexit. Whatever happens, one thing for sure is that the EU is not willing to return to the negotiating table, meaning that the current deal is the only one on offer. Despite all of the above, the most likely outcome at the moment remains that the deal will not get through Parliament. As such, Sterling continues to trade towards the bottom of its range with any volatility coming off the back of Brexit headlines and rumours. Looking ahead this week, starting tomorrow we have a five-day debate where MPs will be able to put forward their suggested amendments to the Brexit bill, of which a maximum of six will be chosen for debate. In addition, Mark Carney is set to speak at the House of Commons tomorrow.
🇪🇺 EUR – Concerns surrounding Italy remain a large source of concern for the Euro as talk of disciplinary measures and fines continue to heat up. This is despite Italian ministers striking a slightly more reconciliatory tone over the past week as they appear more willing to negotiate. This might have something to do with the increasingly soft Italian economy for which Q3 GDP growth was revised down to -0.1 per cent quarter-on-quarter and 0.7 per cent year-on-year on Friday. This latest data offers an insight into the Italian economy but also serves to undermine the optimistic growth assumptions that were included as part of Italy’s original draft budget which saw 2019 GDP growth to be around 1.5 per cent. As these talks are likely to run well into 2019, the Euro is likely to remain on the backfoot until a breakthrough is made. Looking ahead this week, the October industrial data out of Germany will be an important barometer of the state of its economy as we approach 2019, while analysts will be keen to hear from Mario Draghi as he speaks at an event in Frankfurt this Wednesday.
USD: Presidents Trump and Xinping come to a truce around the implementation of further US tariffs on China, causing the Dollar to soften on reduced safe-haven demand;
GBP: The UK Government continue to use and sell fear around what might happen if the upcoming Parliamentary vote on Brexit is rejected on December 11th;
EUR: Concerns around Italy’s GDP and German business sentiment keep the Euro soft, as we await the opinion of Mario Draghi who is set to speak on Wednesday.
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