Tweeter in Chief

​​​​​Today's news headlines:

  • ‘Trade tensions erupt between London and Washington’. Donald Trump’s ambition to secure a swift trade deal with the UK before autumn’s US Presidential election is looking less likely after tensions between the nations rose yesterday. Sajid Javid, the UK Chancellor, confirmed plans to introduce a digital services tax that would target big US tech companies and indicated that the UK would prioritise a trade deal with the EU, not the US. The US Treasury Secretary, Steven Mnuchin, retaliated with import tariff threats on UK manufactured car brands Mini, Bentley, and Rolls-Royce. (Financial Times)
  • ‘China quarantines city in effort to contain viral outbreak’. As up to 100m people prepare to travel for the Lunar New Year, Chinese authorities have sought to contain the coronavirus spreading through the country. Transport links out of Wuhan, the nation’s seventh-largest city, have been shut down and flights from Wuhan to the UK are subject to enhanced monitoring. The World Health Organisation has, however, delayed a decision on whether to classify the spread as an international public health emergency. (Financial Times)

Distractions

2020 has started with a few bumpy patches, but there seems to be a genuine desire to move on and get back to business. Unfortunately, there are a host of distractions that prevent a more constructive agenda. Some distractions originate from the ‘Tweeter in Chief’, Donald Trump, like the whirlwind tour of the Davos Economic Summit, where he attacked environmental poster girl, Greta Thunberg. Or the ludicrous side-show impeachment trial which is setting a new low watermark for US political discourse and almost certainly undermining ring leader Mitch McConnell’s credibility. 

Some distractions, however, aren’t originating from the President. China’s most recent health crisis, in the guise of the SARS-like Coronavirus, is causing increasing concern as cases spread heading into this week’s travel-heavy Chinese Lunar New Year. There is also the latest James Bond-esque scandal involving the Saudi Royal Prince, Mohamed Bin Salman, who reportedly hacked the phone of Amazon founder and Washington Post owner, Jeff Bezos, in retaliation for critical coverage of the Saudi government. Despite all of this, markets are trading pretty steadily sideways while we await this afternoon’s European Central Bank press conference, where the bank’s governing body is expected to begin its year-long policy review.

Bottom line: The verdict is still out on a bottoming of global growth, but we’ve recently seen a few positive signs. German ZEW Surveys displayed a dramatic uptick, the Bank of Japan revised its growth forecasts higher, and Brexit looks likely to happen as planned on the 31st of January. Tomorrow will be a busy day for economic data which will have the potential to truly turn the narrative in a more positive direction.

GBP/USD

Yesterday, Sterling traded higher against the US Dollar following a study by the CBI that UK manufacturers have become much more optimistic about the outlook since October. This led to a reduction in the probability of a Bank of England interest rate cut next week. The UK’s House of Lords also gave its seal of approval to Boris Johnson’s Brexit deal. The Pound’s rally against the Greenback faltered at a key retracement level around 1.3147, but a fundamental level of support remains at the 50-day moving average of 1.3052.

GBP/EUR

Sterling also extended gains against the common currency throughout yesterday’s trading session as the pair broke significantly above the 50-day moving average of 1.1756. Today is light in terms of UK data, so any meaningful price action could stem from news around the European Central Bank’s monetary policy meeting.

EUR/USD

The pair traded in a tight range through yesterday’s session as markets feared the spread of China’s coronavirus would begin to affect the economic environment. Today, participants await the ECB’s interest rate decision and details on the strategic review – the first assessment of the central bank’s monetary policy in two decades.