Weekly Market Wrap 21-25/10/2019

Marius Paun | London, UK | Senior dealer | Friday, 25th October 2019

In a sign that the Sino-US disputes could be thawing, China Vice Premier Liu He said both countries made ‘concrete progress’ towards trade war deal in Washington, many concerns have been addressed laying the foundation for signing a ‘phased deal’.

On the other side of the fence, the US Trade Representative Robert Lighthizer reiterated that his country is targeting the Phase 1 trade deal with China before the Chile APEC summit scheduled for November 16-17 this year. What’s more Larry Kudlow, Director for National Economic Council said if Phase 1 goes well, then December tariffs could be taken off, something that China has asked for already. On top of that China issued 10 million tonnes quota for US soybeans purchases according to Reuters. It may not be 40-50 million initially reported but it’s a start. Is that encouraging?

There were considerable hopes last Saturday in the UK that a vote on UK Prime Minister Boris Johnson’s latest deal with the European Union will take place and thus make things a bit clearer as to the direction of the whole Brexit affair. However, the UK Parliament decided to delay the vote until ‘the document is properly studied and legislation is prepared’. The optimism was out of the window as by midnight Boris Johnson was forced to write a letter to the EU requesting yet another extension. He did so, and now the EU has to decide if, under what conditions and for how long they will offer that extension. Unsurprisingly, the pound sterling started the week on the back foot, paring some of those recent gains. It is still trading just above 1.28 against the US dollar after reaching 1.30 mark, well off the lows of a couple of weeks ago. Is there really light at the end of the long Brexit tunnel?

Bloomberg reported that ECB policymakers don’t expect any more monetary stimulus, even if the economic outlook weakens. As anticipated Brexit drama kept European officials busy too. Many now view a certain amount of flexibility in allowing for an extension. ECB Chair Mario Draghi had his final meeting on Thursday. Amid leaving the benchmark interest rate unchanged at 0%, he said the downside risks are significant but inflation remains muted. Otherwise, it was largely a non-event regarding price movement.

One interesting fact mentioned is that the ECB will run out of bonds to buy according to the new quantitative easing schedule sometimes around the end of 2020!!! It will be intriguing to see if they plan to relax the criteria of the bonds they can purchase. Anyway, getting some sort of direction from the pound, the euro also gave back some of the recent gains, trading around the short-term moving averages, just below 1.11 to the dollar.

Meanwhile, Bank of Japan said they see no reason for a rate cut later this month at their monetary policy meeting, emphasizing that their ammo should be saved in case things get considerably worse. The yen moved rather sideways for the week with investors also on stand by ahead of the next week BOJ meeting.