Macroeconomic data came into the spotlight earlier October with the US Institute of Supply Management (ISM) Manufacturing and Non-Manufacturing Purchasing Managers’ Indices highlighting weakness in manufacturing that is also is pushing into the broader US economy. This had replaced the geopolitical events that had dominated through September, but the market spotlight quickly fell back on the geopolitical arena again last week.
Global financial markets were very erratic last week even ahead of Thursday’s US-China trade talks resumption. Nevertheless, having begun, all the comments from the talks were optimistic, concluding Friday with a statement from US President Trump and China’s Special Envoy and Vice-Chairman, Liu He. A “Phase 1” trade deal has been established, though this deal is still needing to be “papered” but does include intellectual property, currencies and agriculture. In addition, the US also suspended October tariff hikes.
Financial markets reacted to this as a very positive development with optimism for improving the outlook for the fragile, slowing global economy. Share indices and stock markets rallied both Thursday and again Friday, with safer bond markets selling off. In the Forex world, the Australian Dollar went higher, and the Japanese Yen lower as a “risk-on” theme was reinforced.
Alongside the positive breakthrough in the US-China trade talks, Brexit negotiations also saw a breakthrough as the UK and Irish Governments announced Thursday a positive step regarding the Irish backstop issue. This was bolstered by positive talks Friday between European Union and UK officials, with positive soundbites from both sides. Markets now see a fading threat of a no-deal Brexit, with the possibility of a Brexit deal apparently the increasingly more likely result.
The main market impact of the Brexit breakthrough was to reinforce the global stock market rally and significantly push the Pound higher Thursday-Friday, as the GBPUSD FX rate surged from 1.22 to 1.27.
There was also another significant political event last week with the continuation of the enquiry into the impeachment of US President Trump. However, this was somewhat overshadowed by the Brexit progress and US-Chinese agreement. Financial markets have, to an extent, ignored the impeachment threat, but, as we have stressed, this threat will likely dominate for weeks and months into year-end, with impending negative markets risk.
Finally, last week saw an intensifying of the conflict on the Syria/Turkey border, which again, has had subdued bearing on global financial markets, though the Turkish Lira has weakened to a four-month low. However, any intensification of this conflict impact global financial assets.
What to Watch
The focus this week will remain on Brexit talks, alongside the European Council Brexit Summit on Thursday/Friday 17th/18th. In addition, we will look for comments from the International Monetary Fund (IMF) and World Bank’s autumn meeting in Washington D.C., attended by key global political and economic officials. Besides the below mentioned macroeconomic data, next week sees the US earnings season start in full, beginning with the financial sector.
|14th October||IMF and World Bank Meeting starts (all week); China trade data|
|15th October||Reserve Bank of Australia Meeting Minutes; China Consumer Price Index; UK Employment report; German ZEW Survey|
|16th October||UK inflation data; US Retail Sales; Canadian inflation data|
|17th October||EC Summit on Brexit; Australian Employment report; UK Retail Sales|
|18th October||EC Summit on Brexit; China Gross Domestic Product|