Weekly Market Wrap 16-20/12/2019

Marius Paun | London, UK | Senior dealer | Friday, 20th December 2019

The US President Donald Trump has become the third president in the country’s history to get impeached (along with Bill Clinton and Richard Nixon) by the House of Representatives and now faces a trial in the US Senate. The Representatives are controlled by Democrats whereas the Senate is controlled by Republicans, so many analysts were quick to express doubt that Trump will, in the end, be removed from office. As a possible hint to support that view, the US markets seemed unfazed by the decision so far with the Dow Jones and S&P500 making consistent new all-time highs.

Despite the trade dispute with the US, China’s industrial production for November increased 6.2% year on year versus an expectation for a 5% rise. In response to the phase one agreement, Beijing has also announced the suspension of additional tariffs of 5-10% for some US goods planned to take effect on December 15.

The UK Prime Minister Boris Johnson is reported to be planning for a revision to the existing EU exit deal that would rule out extending the transition period beyond the December 2020 deadline. In effect, this move would potentially bring the feared no-deal scenario back on the table. EU’s chief negotiator Michel Barnier has already said that ‘striking a comprehensive free trade deal in 11 months will be impossible’. As a result, the GBPUSD gave back all those significant gains made during the last few weeks, dropping from a high of over 1.35 to around 1.3050 currently, below the election level.

Bank of England left its interest rate unchanged at 0.75%, as widely predicted, with a vote split of 7-2. The Monetary Policy Committee reiterated that ‘the existing stance of monetary policy is appropriate’. Meanwhile, on Friday afternoon, the UK lawmakers voted to approve Boris Johnson’s withdrawal bill so Britain is set to leave EU on 31st of January.

We also had a string of PMI data releases this past week. In the EU manufacturing, PMI surprised to the downside (43.4 vs 44.6 anticipated). In the UK both services and manufacturing PMI were worse than expected and in the contraction territory (47.4 and 49 respectively). Across the Atlantic, there was a different picture still pointing to expansion. The US manufacturing PMI was 52.5 with services PMI coming in at 52.6.

Reserve Bank of Australia’s meeting minutes for December were released earlier in the week and showed the Board agreeing to reassess ‘economic outlook at February meeting’. They acknowledged the persisting risks for the global economy being on the downside but added that Australia appears to have reached a ‘gentle point’, hoping to send the message that the balance is good, for now… and, of course, the extra stimulus could still be used if needed. However, there’s growing speculation among financial pundits that more cuts are on the cards early next year, possibly to as low as 0.25%. The Aussie dollar continued to rebound and now sits just above 0.69 to the US dollar.

We finish with an interesting one, the Swedish central bank ended five years of negative interest rates by raising its benchmark from -0.25% to 0. It has done that despite a slowdown in the economy arguing that negative rates are more damaging in different ways. They boost asset prices and encourage taking on more debt. Is that a one-off, or will more central bankers follow?