The major theme dominating financial markets last week was the progression of the previous week’s breakthrough in Brexit negotiations driven by the UK and Irish Governments. Last week on Thursday 17th October saw UK, and European Union officials agree a new deal.
This Brexit agreement saw the previous week’s advance across global equity markets extend, that had previously assisted by the progress in the US-China trade talks. Sterling also rallied aggressively versus all major currencies, with GBPUSD building on its prior rally from 1.22 to 1.27, extending to nearly 1.30.
The focus then switched to the UK Parliament on Saturday and a vote on the new Brexit deal. However, the Letwin amendment was passed (effectively an insurance policy to avoid a no-deal Brexit on 31st October), which was another impediment for the government, forcing them to send a letter to Europe for a Brexit extension beyond the end of October. A vote on the Brexit deal is expected early this week, however, possibly on Monday.
With respect to the US-Sino trade negotiations, since the Friday 11th October “Phase 1” trade agreement was announced, the soundbites and rhetoric from both the US and China have been more hesitant. China has highlighted that much work still needs to be done on the deal, whilst the US has signalled that tariff increases could occur if a deal is not reached by December.
The continuation of the enquiry into the impeachment of US President Trump has seen heightening tensions, though the financial market impact has thus far been negligible. This potentially negative situation for markets will most probably dominate for many weeks and months.
The Turkey-Syria conflict initially escalated last week before a tentative ceasefire. However, the past week has also seen a diplomatic escalation with widespread condemnation, but with growing risks for this conflict to develop into a more significant diplomatic event. This could then impact negatively on broader, global financial markets.
In addition, the past week has seen the US Congress in the process of passing the Hong Kong Human Rights and Democracy Act, which has already passed through the House of Representatives and is anticipated to pass in the Senate. China has already criticised this legislation as US interference in China’s internal affairs, threatening “countermeasures” if the bill passes. Clearly, this could also have a negative impact on global financial markets and assets.
What to Watch
Key Central Bank events this week are the Peoples Bank of China (PBOC) interest rate decision Monday and the European Central Bank (ECB) interest rate decision on Thursday. The key data this coming week will be the global Purchasing Managers Index (PMI) from Markit on Thursday.
On the geopolitical front the aforementioned Brexit situation, US-China trade rumours, the US Presidential impeachment enquiry, the conflict in Turkey/ Syria and tensions in Hong Kong need to be monitored.
| Economic data | |
| 21st October | PBOC interest rate decision |
| 22nd October | Japanese Holiday; Canadian Retail Sales |
| 23rd October | German 10yr Bond Auction |
| 24th October | Global Markit PMI; ECB interest rate decision; US Capital Good Orders |
| 25th October | German IFO Survey |
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