Marius Paun | London, UK | Senior dealer | Friday, 13th December 2019
On Monday, sentiment turned sour between the world’s two biggest economies. In a tit for tat move to the US imposing a ban on purchases of Chinese technology, Beijing ordered all government offices to remove all foreign hardware and software within three years. Meanwhile, inflation data showed that with surging food prices being the main driver, the CPI has risen to 4.5%. What’s causing most concern is that pork prices, in particular, moved up an eye-watering 110% year on year.
In the US, the Federal Open Market Committee left its benchmark interest rate unchanged at 1.75% as was widely expected. In his opening statement, the Chair Jerome Powell said the US economic outlook remains largely favourable despite headwinds on the global scene. He added income is rising, as is consumer confidence, whilst inflation is still below 2% and growth is set to continue. All rather good, but then why QE?… oh wait, as Powell says, “don’t want to call it that way”
Late on Friday China held a press conference saying it has agreed on a deal with the US, subject to President Donald Trump signing it. It appears that the 25% tariffs will remain in place, the White House confirmed, but the new 15% additional duties will not take effect on Sunday. Both sides worked around the clock to have something done before the 15th of December deadline.
It was a very busy week back in the UK with a general election taking place on Thursday. As previously indicated by the polls (which were right this time!) the Conservative Party won by quite a margin. They needed 326 seats to secure a majority in the House of Commons yet they now have 365 seats gaining most from the main opposition party, Labour.
Although it is still unclear how trade negotiations with the European Union will unfold, at least the uncertainty of Brexit actually happening is now perceived as lifted. As a result, the GBP spiked over 2% against the USD when exit polls were announced, reaching an intraday high of 1.3515.
As per their peers, the European Central Bank decided to keep interest rates on hold at 0%. But the interesting piece, closely scrutinized by investors and media alike, was the first press conference from the new President Christine Lagarde. And the overall verdict is that she held her ground, came out well, doing things her way rather than following in the predecessors’ footsteps.
Back in Europe, the Swiss National Bank left their interest rate well in negative territory at -0.75% saying the Swiss franc continues to be ‘highly valued’ and it stands ready to intervene if needed. Very original!… is there any central banker in the world who does not say that these days?
The final note of interest is Aramco, the Saudi Arabia oil and gas company which had its IPO this week on the local exchange, Tadawul. Although the starting valuation was around $1.7 trillion, within two days of trading it reached $2 trillion. It’s now the world’s biggest company by market capitalization, dwarfing Apple and Microsoft, which are valued at just over $1 trillion.