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Moving to the background

​​​​​​​Today's news headlines:

  • Sajid Javid to issue ‘Brexit red tape challenge’ to public – Chancellor Sajid Javid will invite members of the public to propose ways in which Britain could diverge from EU rules and regulation. The process - which he described as a ‘competition’ - is designed to identify rules which should be removed or improved as Britain shapes its post-Brexit landscape. The announcement follows Johnson’s call for a Canada-style trade deal that would create customs and border checks. (Financial Times)
  • ‘China to halve tariffs on $75 billion of US goods for deal’ – China is set to cut tariffs of $75 billion of US imports later this month, signalling adherence to the US-China trade deal amid the Coronavirus outbreak. China has stated other retaliatory tariffs will remain, whilst it continues to process applications for tariff exemptions. (Bloomberg)

Ramping up the response

As the Coronavirus death toll in China creeps up to 600, the Chinese government is stepping up efforts to counter the Coronavirus by building labs capable of testing 10,000 samples a day. The first human trials of Gilead’s antiviral drug will also take place today, although a few days will be required to ascertain any preliminary indications of the drugs efficacy. 

Turning to trade, the US and China have announced they will reduce tariffs on the 14th of February, causing a salutary effect on market sentiment. Bloomberg reports that China will reduce tariffs on $75 billion USD on US products, which comes as welcome relief to markets who are monitoring the ongoing détente.

Meanwhile, OPEC+ members have been meeting to agree upon further production cuts to buoy oil price. Each member’s profitability is constrained at differing price levels based on their domestic cost dynamics, which has caused some disagreement about the urgency of any reaction to the Corona-induced depreciation. While that doesn’t sit well with most OPEC+ members, the lower price is largely positive for global business, since it translates into a lower cost of doing business at a time when market participants might view the market with some trepidation.

Bottom Line: Yesterday we saw some very positive numbers coming out of the US. ADP Non-farm Employment Change came out at the highest level in 3 years, while ISM Non-manufacturing Purchase Manager Index came out at 55.5, decisively back into expansionary territory after a worrying drop in Q4 of 2019. This morning, YoY German Factory orders came out at the lowest level since the financial crisis, which undermines arguments that Germany is returning to growth. The markets tone is still cautious, but as the virus story starts to fade from headlines, so too will investor caution.


The pair has managed to close above the 1.30 figure every day this week despite trading much of the week below the key level. Yesterday, Cable reached lows of 1.2956 following news that the EU might get rid of concessions made in the MiFID II rulebook. It did quickly bounce back, albeit lower than where we opened. A light economic calendar will cause markets to focus on Fed speaker Kaplan’s discussion on the US economic outlook this afternoon.


Yesterday, a weakening Pound and Euro created relatively quiet conditions for the currency cross as it opens London in the middle of its 10-week trading range. This morning’s weaker than expected German factory orders may help to support the pair in today’s session ahead of ECB member Villeroy speaking this afternoon in Paris.


The common currency fell towards the 1.10 level yesterday afternoon and failed to bounce back overnight. This morning’s weaker-than-expected German factory orders is likely to add to downward pressure on the Euro, ahead of US labour market data this afternoon. ECB and Federal Reserve members will be speaking later today, potentially creating more volatile conditions this afternoon.