Weekly Market Wrap 14-18/10/2019

Marius Paun | London, UK | Senior dealer | Friday, 18th October 2019

The week started with China trade data for September showing both imports and exports declining more than expected. However, the surplus was 280 billion yuan, above 253.8 billion anticipated and up from 240 billion seen previously. Bloomberg reported that China wanted more talks before signing Trump’s ‘Phase One’ deal which increased investors’ optimism last week. It added that Beijing also wants President Trump to scrap the planned tariff hike in December. At the time of writing, we have not seen the White House response!

The US stepped back from Syria and Turkey immediately moved right in and started to displace the Kurdish rebels. International media, as well as a few senior US Republicans, were quick to point out ‘the treason’, as Kurds are considered to have been one of the main contributors in the battle to defeat ISIS. So President Trump made a small retracement and looks poised to impose sanctions on Turkey, which subsequently sending the Turkish Lira lower.

After appearing defiant initially, Turkey stuck to its original plans of assuring a buffer zone between the southern border and the Kurdish rebels and eventually agreed to a cease-fire. The US dollar was on the back foot for the week as a string of optimistic news stories pushed investors out of their recent ‘risk-off’ mode.

In the UK, Bank of England joined the US fed in saying they don’t favor negative interest rates and they see using other monetary tools as being more effective. In other places, notably Europe there is a clear trend underway of utilising negative interest rates in order to force banks to lend more.

On Tuesday it was reported that the EU and the UK were closing in on a draft Brexit deal conditional of getting DUP (ruling party in Northern Ireland) support. As a result, the GBPUSD who was already on an upward trajectory moved sharply higher to above 1.28. Indeed, two days later both sides i.e. EU leaders and UK Prime Minister Boris Johnson, came out announcing they finally reached a Brexit deal.

However, there still appears to be one last significant hurdle to overcome before all is settled: the deal needs to be sanctioned by the UK Parliament… and we all know what happened the last time. Parliament is to hold the vote on Saturday. Despite this uncertainty remaining, overall the market views this as a positive week of news and the pound sterling continued to rally sharply, getting within touching distance of 1.30 handle, only to retrace slightly on Friday.

The feel-good sentiment also lifted the EURUSD which moved up above 1.1150, a level last seen at the end of August this year.

In Australia, the minutes from the latest Reserve Bank of Australia meeting in October indicated the central bank readiness to cut again, to support growth and jobs. It added that mining and the housing sectors have reached turning points.

The Aussie dollar took advantage of relative calm on the US-China trade disputes and managed to recoup some of its recently lost ground, reaching 0.6850 to the US dollar. It got extra help from a lower jobless rate report.