Financial market research and analysis

Asian markets traded mixed overnight as optimism over  more supportive central banks was offset by ongoing concerns over trade. Trump poured cold water on any hope that the US and Mexico were close to a deal, hitting already fragile sentiment. If no deal is reached tariffs at 5% will begin on Monday and judging by Trump’s comments that is looking more likely than not.

Mexican markets were dealt an additional blow after rating agency Fitch downgraded the country’s debt rating to BBB, whist Moody’s cut its to negative from stable. The Mexican peso dropped 0.9% versus the dollar as investors responded to the downgrades.

Wall Street managed another positive close as investors focus on the possibility of the Fed cutting interest rates to support the US economy in the event of a downturn, amid a drawn-out trade war. Whilst weak ADP private payroll numbers supported the case for a rate hike and was cheered by investors, stronger than forecast ISM non-manufacturing data had the reverse affect. Friday’s non-farm payrolls will provide markets with a clearer picture as to the health of the US economy and the chances of rate cut in the near term.

Oil holds on to losses

Having plummeted 3.5% in the previous session, oil was holding onto those losses in early trade on Thursday as it hovered around a five-month low of $51.80. The sharp fall came following an unexpected jump is US inventories amid escalating concerns over future demand. Supply is swelling just as fears of a global downturn are hitting the future demand side of the equation. This timing couldn’t be worse. Brent dipped below $60 per barrel, whilst WTI has managed to hold above $50. Any further signs of the global economy weakening, and these key levels could quickly be breached.

All eyes on the ECB

After the RBA cut rates and the Fed signalled a dovish shift, all eyes are on the ECB and what their next move is likely to entail. The euro pushed higher versus the dollar in the early part of the week, following a more dovish Jerome Powell. However, the euro has pared some of those gains as we move towards the ECB announcement.

Despite some improvements to eurozone data, the most important data points for the ECB, namely, consumer spending, manufacturing, retail sales, and inflation have been moving lower. External factors such as the US – Sino trade dispute and Brexit are also acting as a drag on the eurozone economy. Draghi & Co could struggle to stay positive. Given the low inflation and trade uncertainty we expect the ECB to trim their macro-economic projections and  modify their interest rate forward guidance. As for the TLTRO3, the devil is in the detail, investors will use this to make judgement as to how dovish the ECB are right now.