Key points from this week
The Japanese Yen was the standout performer of the week, rising firmly against USD as heightened concerns over the health of the global economy drove steady safe-haven inflows over the week. The worst performing currency of the G10 space this week was the Swiss Franc which fell amidst a slew of weak data over the week, seeing investors prefer other safe-havens.
Global Growth Fears
A steady flow of worse-than-forecast economic releases over the week saw renewed concerns over the state of the global economy. Growth fears have the dogged the global outlook over the year as a result of the fresh escalation in US – Sino trade tensions. Data sets showing all-sector activity in the UK and the US disappointed this week. Manufacturing PMIs in both the UK and the US remained in contractionary territory over September.
These weak readings come on the back of contractionary manufacturing readings in the Eurozone last week, reflecting subdued factory activity across the globe, raising the risks of a global recession. This message was shared by the WTO which predicted that global merchandise trade will only increase by 1.2% this year, down more than half from its April estimate of 2.6%. This would mark a dire slowdown from the 3% reading in 2018 and would also be the worst year since the financial crisis a decade ago.
Johnson Presents New Brexit Plan
Following the UK PM’s embarrassing defeat in the Supreme Court, Boris Johnson affected a shift in approach this week. Ahead of the October 19th deadline dictated by the Benn law, the PM this week presented an emended Brexit plan to both the EU and to parliament. EU leaders will now discuss the plan ahead of the upcoming EU summit on October 17th where they will decide whether to approve the new terms. The new terms propose a single regulatory zone on the island of Ireland with customs checks on either side of the border, avoiding the need for hard-checks on the border.
Johnsons came under immediate attack from across the political divide for his new proposals and the initial reaction from a range of EU leaders has raised doubts over the prospect of the plan being approved. Donald Tusk, President of the EC, said that the EU was “open” to Johnson’s plans, but “unconvinced”. The market now awaits an EU response to see whether the plan will take on further amendments.
Key Points Next Week
FOMC Meeting Minutes
Traders were underwhelmed by the Fed’s latest rate cut due to the heavy division among voting policymakers. The market will now be looking for further details around this discussion in order to establish the likelihood of any further cuts this year. So far, the market is pricing in one final cut for December.
ECB Meeting Minutes
The ECB announced a broad-range of easing as the September meeting. However, some market participants were let down by what the felt was a softer-than-needed action by the bank. Traders will now be looking to see whether the ECB discussed more aggressive easing and whether the bank is likely to ease again over the remainder of the year.
Keep An Eye On
EIA Short Term Energy Outlook
WTI prices collapsed once again this week as the EIA reported yet a further build in US crude inventory levels. Next week the EIA will issue its latest short-term outlook. Last time around, the group upgraded its US crude production forecast which pulled prices lower. If the group adds to this upgrade again this could spell further trouble for benchmark WTI prices.
Brexit Response
Ahead of the EU summit, the UK PM will hear back from the EU over the submitted proposal which could be involved either the EU completely rejecting the terms, or offering options for further possible amendments. If the EU rejects the terms, this will create greater uncertainty as Johnson has vowed to take the UK out of the EU on October 31st if the EU rejects the plan. However, in a fresh twist a court hearing underway in Scotland today, concluding next week, will determine whether Johnson could go to jail if he does indeed defy UK law and force a no-deal Brexit.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!