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EURUSD > 1.10 on talk of US-China currency pact

European shares are lower on Thursday. The losses in Europe follow a volatile session in Asia where shares gyrated to conflicting reports over the backdrop to high level trade talks set to begin today.

Trade talks – “partial deal” would be huge for equities

The high-level talks that markets had set their sights on begin today. In the week before these talks, markets have gone precisely nowhere. Investors are waiting for the conclusion of these talks before taking their next move. With trade talks concluded and earnings season about to kick-off, we’d expect volatility to pickup heading into next week.

There are clearly many issues that can derail these talks but the concept of a “partial deal” has breathed new life into the idea of a pre-US election agreement. Even if a partial deal can be defined as something as simple as less tariffs and more agricultural purchases, the current situation would be much less antagonistic with better prospects of ending the trade war.

EURUSD > 1.10 on talk of US-China currency pact

Talk of US-China currency pact has sparked some understandable forex market volatility. One would assume if a specific dollar-yuan exchange rate forms a part of the pact, it would be at a stronger yuan (weaker dollar) level than today. A specific level would be hard to operate but a band around a specific level could work with China’s current managed currency regime. We said at the start of the week that the ECB has shown its hand and that forex moves are now dollar-driven. The dollar is weakening not just against the yuan but also the euro. The prospect of another US rate cut this month as well as front-running Federal Reserve asset purchases adds to the bearish-dollar tone. We don’t know how long a currency pact has been discussed in technical trade talks between the US and China but on the assumption it is a new idea, there would likely not be enough time to decide how to implement it in time for the high level talks today and tomorrow.

UK GDP – no trigger point for a BOE rate cut

The Brexit deadline gives these growth stats more weight than usual. Growth for the UK in August fell -0.1%, more than expected. But June July was revised higher so it looks like the UK will eek out some growth in Q3 and avoid a recession. Back to Brexit for a moment. Most market participants have taken no-deal off the table, including us – but never say never. If the Bank of England were faced with a “disorderly” Brexit, recession or not, we think a rate cut is the default policy response. EURGBP cleared 0.90 in the run-up to the data and we’d expect rate cut expectations to encourage further weakness in the pound against the euro.

$65 Brent crude if partial trade deal struck

It’s notable that weekly supply data has barely moved the needle for oil prices. For now it’s all about the trade talks and the implications for global growth and oil demand. Brent crude is resting just around $58 per barrel – and that makes sense as the mid-point between the 2019 low around $55 and the psychological level of $60. If somehow progress is made in trade talks, with a backdrop of a Turkish ground attack in Syria adding to the geopolitical unrest, we would expect Brent crude to close the year above $65 per barrel. For the moment, chances of a deal look slim and a move below $55 appears most likely.

22-10-2019

Is Brexit happening? The ball is in Parliament’s court. P&G to top estimates.
Stock markets trade on a positive note on growing expectations that the US and China may finally clinch a partial deal at next month’s APEC meeting in Chile. US President Donald Trump said that China is already buying US farm products, and he wants them to buy… Read more

21-10-2019

Pound slips as UK leaves BoJo’s deal aside and votes to delay Brexit
The pound fell to 1.2875 against the US dollar, as British lawmakers voted to ask for a delay on the Brexit deadline on Saturday rather than voting on the Brexit deal that Boris Johnson put on the table.As a result, a letter was sent to EU’s Donald Tusk asking… Read more

18-10-2019

China slows. Pound gains as Parliament prepares to vote on Johnson’s deal
The Chinese GDP growth fell to 6% in the third quarter of 2019, although the industrial production jumped to 5.8% y-o-y in September and the retail sales advanced 7.8% as expected, versus 7.5% printed a month earlier. Fixed assets excluding the rural area expa… Read more

17-10-2019

Pound traders hedging downside risks, again. PM’s alternative businesses at jeopardy.
If the week started on some optimism regarding the US-China trade deal and the Brexit, it will probably end on battered hopes of seeing any progress on both ends.The S&P500 (-0.20%), the Dow Jones (-0.08%) and Nasdaq (-0.30%) closed Thursday’s session in t… Read more

16-10-2019

US-China deal hopes are being dashed, again. Netflix in focus.
US stock markets closed in the green on better-than-expected bank earnings on Tuesday.But the US stock futures headed south in the overnight trading session, as tensions with China started rising again amid the US House passed a bill on Hong Kong, which requir… Read more

16-10-2019

US bill risks China retaliation
Shares in Europe slipped, and US futures are pointing lower on Wednesday. There’s some fear out there that China will retaliate to a US bill defending the rights of Hong Kong protestors. The timing is certainly awkward, just as the US and China struck a “phase… Read more

15-10-2019

China wants more talks. Euro gains ahead of a potentially ugly ZEW survey.
Chinese officials threw cold water on the optimism about Donald Trump’s first phase trade agreement, as they said to be willing to discuss more before signing a deal. We could already feel that the Chinese were not fully satisfied with their Washington visit, … Read more

14-10-2019

Equities edge moderately higher, no feeling of euphoria after US-China partial agreement
Equities began the week on a positive note amid the US and Chinese officials reached a partial trade agreement at last week’s negotiations.The S&P500 (+1.09%), the Dow Jones (+1.21%) and Nasdaq (+1.34%) gained on Friday, although Donald Trump’s announcemen… Read more