Trade talks and UK election result affirm “risk on” theme

Intermediate
  • Markets began last week on a positive footing after the strong US Employment report the prior Friday (6th), as we highlighted in our Macro Watch report last week, with the November Non-Farm Payroll data particularly strong at 266K jobs added (expectations of 187K) and the Unemployment rate at 3.5%, matching the lowest jobless rate since 1969.
  • Stock markets globally were further buoyed on Tuesday with the signing of a new trade deal between the US, Canada and Mexico, replacing the old NAFTA agreement.
  • The focus shifted to the Federal Reserve in their last FOMC Meeting of 2019 on Wednesday. There was no change in interest rates (as anticipated), though the Fed maintained their dovish stance, indicating that rates would likely remain on hold through 2020. Stock averages in the US and globally cheered this outcome, probing higher.
  • The focus then shifted to the much-anticipated UK general election, with an emphatic majority for the Conservative party predicted by the exit polls at 10.00 p.m. on Thursday 12th December.
UK general election
GBPUSD
  • The US-China “phase one” trade deal progressed and according to US Trade Representative Robert Lighthizer is “totally done,”.
  • This has incorporated a delay in tariffs that were due to take effect on December 15th, with US negotiators reportedly offering significant reductions to current tariffs (on $120bn worth of Chinese imports), whilst China has committed to buying large quantities of US poultry, soybeans and other agricultural products over the next two years.
  • The positive tone from the trade deal and the UK general election outcome, has reduced global uncertainty, sending US and global equity markets surging higher, with the major US stock averages hitting new record highs
  • In contrast, the safe-haven currency, the Japanese Yen sold off, with the USDJPY Forex rate nearly hitting 110.00, whilst European, UK and US Government Bonds sold off to lower prices, higher yields.
  • The U.S. impeachment inquiry reached its expected conclusion with the House of Representatives Judiciary Committee agreeing articles of impeachment against the President, with a full House of Representatives vote expected this week.
  • The impact on financial markets was once more muted, as it is NOT expected that the Republican controlled Senate will vote with the two-thirds majority required to impeach the President.

Key this week

  • The Queen’s speech is expected in the UK on Thursday to mark the new session of Parliament with a majority Conservative government. Prime Minister, Boris Johnson has committed to quick and significant progress on his Brexit deal, alongside a range of other new initiatives that the markets will watch for with interest.
  • A full House of Representatives vote to go ahead with impeachment is expected, likely in the second half of this week.
  • The Central Bank focus will be on the Bank of Japan meeting, but more significantly the Bank of England decision, both of which are on Thursday. The Bank of England may possibly respond to the certainty that has come from the general election result. Friday also brings the People’s Bank of China (PBoC) interest rate decision.
  • A heavy week for data; Chinese Retail Sales and Industrial Production, global Markit Manufacturing, Services and Composite Purchasing Managers Index (PMI), German IFO, UK Employment and inflation reports plus Retails Sales and Gross Domestic Product (GDP), Australian Employment report, Canadian inflation, US Industrial Production and GDP.
  • The US-China trade talks, that have been in the spotlight for many months will now likely fade in immediate importance as they move into a “phase two” stage.
Date Key Macroeconomic Events
16/12/19 Chinese Retail Sales and Industrial Production; global Markit Manufacturing, Services and Composite PMI data
17/12/19 Reserve Bank of Australia (RBA) Meeting Minutes; UK Employment report; US Industrial Production
18/12/19 German IFO; UK, Eurozone and Canadian inflation reports (Consumer Price Index, CPI);
19/12/19 Australian Employment report; UK Retails Sales; BoJ and BoE Meetings and interest rate decisions
20/12/19 PBoC interest rate decision; UK and US GDP

Steve Miley

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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