ALPHA Market Update 11 January 2019

11.01.2019

Market Update

 

 

 

United States

  • Core CPI data will be released at 13:30
  • The Fed Budget Balance will be published this afternoon
  • Trump announced that this issue is particularly important for national security because the Democratic Party refuses to compromise on border security. He decided to cancel the “very important” trip to Davos. Earlier, he also told reporters that if the government continues to shut down, he may stay in the United States. Analysis shows that Trump seems to suggest that the door closure will last for several weeks
  • The Federal Reserve Brad served as the voting committee this year: the Fed has already reached the end of the interest rate hike
  • Fed Chairman Powell: Flexibility and patience for raising interest rates. It is said that if the government is closed for a longer period of time, economic data may reflect the impact; there is no sign of increased risk of the US economic recession; it is worried about US debt growth; the future balance sheet size will be significantly lower than the current level, but higher than the past level.
  • Following Apple, a number of US companies cut their earnings guidance, causing stock prices to plummet. Macy’s lowered its annual revenue and profit guidance, the stock price fell nearly 18%, smoothing the increase since 2018, the second largest single-day decline in the company’s history, falling to a 11-month low
  • Yesterday, Fitch warned that the United States may lose its AAA rating. Moody, another major global rating agency, also believes that although the government’s closure has no direct impact on the US sovereign credit rating, the negative impact on this rating has reached the level of disrupting the economy. If the door is extended, Moody’s will reassess each specific scene.

United Kingdom

  • This morning there was some data for the UK, showing that GDP grew at a faster pace than expected (0.2% vs 0.1%). followed by some negative trade balance and productions data (manufacturing and industrial production were -0.3 vs 0.4 exp and -0.4 vs 0.3 exp), this data has taken a back seat this morning as we have seen rumours from the cabinet written about in the evening standard that the brexit date has been delayed, these are unconfirmed reports, but initially pushed GBPUSD above 1.28 for the first time this year, finding heavy resistance at about 1.285 before quickly dropping back below 1.28 as this is a knee jerk reaction to a rumour.

Europe

  • As the turmoil over Brexit continues at Westminster, the attitude in Brussels appears to be: “Keep calm and carry on.” That was an official slogan adopted by the British government in 1939, on the eve of war. On Wednesday, European diplomats were glued to the drama as MPs clashed with the Speaker of the House of Commons, John Bercow. There was a cautious welcome for the amendment shortening the time Theresa May’s government will have to respond if, as expected, it loses next Tuesday’s vote on the UK withdrawal deal. “It reduces the possible period of uncertainty, or at least it might do,” said a European official.

Commodities

  • Oil prices rose 1 percent on Friday, on track for solid weekly gains after financial markets strengthened due to hopes the United States and China may soon resolve their trade dispute. Tightened supply following OPEC-led cuts in crude output also aided gains, but fears of an economic slowdown have kept markets in check. International Brent crude futures were at $62.30 per barrel at 0945 GMT, up 62 cents, or 1 percent. U.S. West Texas Intermediate (WTI) crude futures gained 59 cents or 1.1 percent at $53.18 per barrel. WTI and Brent are set for their second week of gains, rising nearly 11 percent and 9 percent respectively. Markets were supported by hopes that an all-out trade war between Washington and Beijing might be averted. Three days of talks concluded this week with no concrete announcements, but officials said further negotiations would likely follow this month.

Australia & New Zealand

  • AUD has continued to strengthen this morning as optimism about trade talks between the U.S. and China helped lift markets and as investors responded to a strong set of retail sales numbers for November.
  • Chinese officials said Thursday that talks have laid “the foundation for resolving issues” around international trade over the coming weeks, delivering a boost to investor risk appetite at a time when markets were on edge over the so-called trade war between the world’s two largest economies.
  • Negotiators from both sides are expected to remain in contact over the coming weeks, although a deal to end the trade war is needed before March 01 to avert an automatic increase in the 10% tariff charged on $250 billion of goods exported to the U.S. each year.
  • However HSBC are saying the market may have been too optimistic over AUD during recent weeks and that it will soon see fresh losses. The housing market, economy and what weakness in both might mean for the RBA are chief among the reasons for why.
  • Australian GDP growth came in at just 0.3% for the third-quarter, which took the annualised pace of expansion down from 3.1% previously, to 2.8% in the recent quarter when markets had looked for the economy to grow 3.3% relative to the same period one year ago.
  • “Any sign that the RBA optimism is starting to be tested, particularly relating to the oft-repeated statement that the ‘next move is more likely to be up’, would likely open up a move in AUD-USD below 0.70, a level it has spent little time beneath,” Nash writes, in a recent note to clients.
  • HSBC have told clients to bet on a decline in the AUD/USD rate to 0.6910.
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