Key Points This Week

US-Sino Trade Deal on Track

Expectations that the US – Sino “phase one” trade deal (verbally agreed October 10th) will be signed over November has kept equities indices in demand. US benchmarks have traded to new record highs this week as the prospect of an end to the 17-month tariff war looks increasingly likely. Comments from US Secretary of Commerce encourage traders with Wilbur Ross noting that negotiations were making a lot of progress and were now very far along.

BOE Takes A Dovish Turn

The BOE kept its headline interest rate unchanged this week though with two members voting in favour of a cut, a dovish shift was noted. The BOE said that ongoing uncertainty from Brexit was likely to keep growth limited over the next three years and said that if global growth fails to pickup or if the damage from Brexit becomes more entrenched, it might need to act. However, the BOE added that the caveat that if these risks “do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target”.

EU Economic Forecasts Revised Lower

The EU cut its domestic growth forecasts in the latest update delivered this week. Citing ongoing trade tensions and weaker global conditions, the 19 member economy is now projected to grow at a pace of 1.1% this year and 1.2% in 2020. This is down from the prior forecast made in May which projected a 1.2% growth rate for the euro zone in 2019 and 1.5% for 2020.

OPEC Cuts Oil Demand Outlook

OPEC released its latest World Oil Outlook for 2020 this week. In it, the cartel slashed its global oil demand forecasts right through until 2040. In the short term, the group notes weaker global demand as a result of lower global growth while in the longer term it notes a shift away from oil usage as a driver of weaker demand.

Key Events Next Week

UK GDP 3Q

Following a contractionary reading for Q2, next week’s preliminary reading for Q3 will be closely watched by the market. If we see another negative reading, confirming a technical recession in the UK, GBP could be sharply lower. Following a dovish BOE meeting this week, a negative reading would certainly see increased expectations of a BOE rate cut before the new year, exerting downward pressure on the British Pound

US CPI

On the back of the latest rate cut from the Fed, next week’s US CPI reading for October will take on extra market attention. The Fed made it clear that it is looking to hold off on any further rate cuts in the near term. Following a strong service sector reading this week, a positive surprise in CPI would see rate cut expectations further reduced, leading USD higher. However, any weakness in the CPI reading could see rate cut expectations building again, which would cap USD upside.

Keep An Eye On

Brexmas Election Headlines

Initial polling results are starting to come in and so far the gap between the Conservative party and its main opposition, Labour, has been relatively narrow at around 8% or so. If this margin starts to narrow, the risk around Brexit will start to shift with a growing likelihood of Brexit being further delayed or cancelled altogether should Labour win. On the rother hand, a rise in support for the Conservative party raises the risk of a sooner-than-expected Brexit as well as the returning risk of a no-deal Brexit.

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