Dreaming of a calm Christmas

​​​​​​Today's news headlines:

  • ‘China to Cut Tariffs on Pork, Tech From List Worth $389 Billion’ – Yesterday, the Chinese ministry of finance announced cuts to import tariffs on a wide range of goods, including consumer items, manufacturing parts and food. The Government has targeted goods such as frozen pork and smart-phone parts in order to reaffirm their position on globally freer trade as well as raising efforts to boost domestic demand. The move isn’t directly related to the US-China trade war but supports the move towards finalising a phase one trade deal. (Bloomberg)
  • ‘These Are the Big Brexit Battles Ahead’ – With Britain finally on the cusp of leaving the EU, focus must now switch to the more important future relationship between the two. Negotiations will take place on everything from security to trade and will require input and approval from all the remaining 27 members of the zone. Some of the major issues will be automobiles, agriculture, fisheries, the Irish border and collective security. The European Commission President, Ursula von der Leyen, has conceded that time is short for both sides to negotiate and that the EU must put specific focus on issues that will lead to an economic cliff-edge by the end of 2020 if unresolved. (Bloomberg)

An optimistic ending

After a year of endless political and economic uncertainties, this year is wrapping up on a somewhat positive note. Much like a season finale of your favourite sitcom, one gets the sense that many of this year’s themes are drawing towards resolution, but at the same time things are distinctly different and next season won’t be the same.

Brexit and the US/China Trade war both have seemingly hit upon a conclusion, but the keen TV watcher will sense the coming twist. Next year the negotiation of a new trading arrangement between the UK and the EU will begin, which is likely to reveal a whole host of unforeseen obstacles to Boris Johnson’s end-of-2020 deadline. At the moment, the UK PM is ending the year on strong footing with a sizable majority in Parliament, but once the Brexit withdrawal agreement – the issue which has galvanized his new-found support – is passed, it remains to be seen how the political dynamics will reform in the crucible of post-EU Britain.

Even heading into Christmas week, conciliatory sounds are emerging which point towards an easing in trade tensions between the US and China. The phase one deal, if nothing else, provided a path to stabilisation of ongoing tit-for-tat tariffs and even an easing of some of the accumulated pressure.  Given all the twists and turns this year, most view this trade deal like a dry January pledge – with well wishes but a heavy dose of scepticism. In order to unlock the greater part of frozen business spending, a second more comprehensive agreement is required to demonstrate long-term viability of trade links. In the new year, under the shadow of impeachment and the start of election season, a journey towards a phase two deal is certain to be an uphill battle.

Bottom Line: There is little data heading into a quiet few days of the month. Mostly, markets are alert for issues which plagued funding markets several times this year. Aside from that, liquidity is likely to be thin before the new year. Unless some unexpected news headlines move markets, economic data is unlikely to do so. 

GBP/USD

Sterling traded in a tight range against the US Dollar to end the week, capping its losses at just over 3% for the week. This week has started on stable ground as the Pound has bounced back above the 1.30 level amid a broad Dollar pullback. The holiday mood is likely to limit any market moves, with no UK data due out and only durable goods orders due from the US.

GBP/EUR

The Pound is trading back around the mid 1.17’s against the Euro this morning after finding resistance at the 1.18 level on Friday amid broad Euro weakness. It’s set to be a quiet holiday week, with no data due out of the bloc.

EUR/USD

A stronger trade-weighted Dollar on Friday took the currency pair back into familiar territory around the mid 1.10 range that we traded in to begin the month. Friday’s solid US data pointed to sustained economic growth levels across the pond, as the US looks to extend its longest period of expansion in history.