Weekly Market Wrap 26-30/08/2019

Marius Paun | London, UK | Senior dealer | Friday, 30th August 2019

In a tit for tat move, Friday 23rd August, China announced a string of long-awaited retaliatory tariffs on $75 billion worth of US goods. Effectively that meant an additional 5% to 10% tariff on top of existing ones on over 5,000 items including agricultural (i.e. soya beans) crude oil and light aircraft.

In retaliation, President Donald Trump said the US will raise duties on $250 billion of Chinese goods to 30% from 25% starting on October 1st. He will also hike tariffs on another $300 billion to 15% from 10% starting to take effect on September 1st.

As a result, the risk-off sentiment spiked and investors went into weekend concerned about how low the markets might open the following week. Trying to calm the spirits, Trump announced on Monday that China is ready to come back to negotiating table (apparently not confirmed by the Chinese press though). However, it was enough (for now?) to ease the tension and markets rallied back, recouping all the loses.

Back in the UK, Prime Minister Boris Johnson took the decision to prorogue (shut down) Parliament before a new Queen’s Speech (which traditionally opens a new session) on October 14th. The Queen approved this action, in accordance with her neutral political stance. The move was widely seen as an attempt to restrict members of Parliament from blocking a no-deal Brexit.

The reaction on both sides was rather aggressive. Remainers described it as ‘an outrageous attack on the Constitution’ promising to take down the government. The Brexiteers approved it as the only way to move forward and actually deliver Brexit. After all, they point out that more than 3 years have passed, Britain had 2 extensions on Brexit, and there is still no deal in sight to satisfy even a slim majority. And on top of that Parliament voted to take no-deal Brexit off the table when the vote was simply to take Britain out of the EU period, no ifs no buts.

The GBPUSD reached a high of 1.2309 just before the news on what appeared to be a softening stance from German Chancellor Angela Merkel. It dropped to 1.2155 but has somewhat recovered now swinging either side of 1.22. Safe to say that so far it was a rather muted reaction in sterling. Maybe the next few weeks things will change this, but it remains to be seen.

On the European front, we noted that the German Final GDP numbers confirmed the country lost 0.1%. Politicians will now feel extra pressure to start spending considerably more, especially when inflation figures also surprise on the downside.

The escalation of US-China trade war increased possibility of a no-deal Brexit and a stuttering German economy were more than enough to convince investors that gold could be one of the answers to mitigate those risks. The precious metal made a fresh recent high of 1555 but since retraced to current 1530 mark.