Last week ended with several of the ongoing, global, political situations still dominating the political landscape; the U.K. political turmoil in the Tory Party, Brexit, USA tax cuts, and Catalonia, were the key issues of last week and will take centre stage over the next few days and weeks, until some form of resolution is reached on many of the issues.
In relation to Brexit, what appeared to be a planted question delivered by a German journalist, at the end of another navel gazing session of Brexit diplomacy between the U.K. and the E.U.’s representative Mr Barnier, derailed all the carefully crafted diplomacy. To paraphrase, the journalist asked Barnier; “is it true you’ve informed the U.K. that they have two weeks to get their act together and to stop wasting everyone’s time?” The answer was; “oui”. The Barnier press conference happened too late in the afternoon, for markets to take on board the significance of this ultimatum and for the U.K. pound to react versus its main peers.
Sterling had experienced a positive week of recovery, versus the majority of its peers and with several hard data publications producing highly positive results on Friday that momentum was maintained; manufacturing and industrial production figures for growth beat forecasts, whilst construction growth missed forecasts. However, the devil was in the detail, as the improvements regarding industrial and manufacturing figures revealed that the export growth came courtesy of European demand, which will naturally reduce after Brexit. Having fallen through the 100 DMA during the previous week, cable has since reversed direction to breach the key metric to the upside. However, with the clock ticking down on the fourteen day ultimatum, cable traders (GBP/USD) and sterling traders in general, need to maintain a high state of vigilance over the coming days, particularly in light of the latest U.K. inflation figures being published this coming week.
The main USA equity index, the SPX, experienced a down week for the first time since early September, closing down by 0.2%. Consensus appears divided on just how much slack still exists in the USA equity markets, in order for them to be bid up further. Opinion is agreed on what’s caused the 22% year on year rise; tax cuts for corporations, promised during Trump’s election campaign, which is still high on his administration’s agenda, combined with better than expected earnings from many listed companies. Many of whom took advantage of ultra-low interest rates, to buy back their own stock, causing a scarcity, therefore the stock price inflated. Having reached a multi month high on November 6th, USD/JPY appeared to reject the critical 114.0 handle, to end the week down, as did the dollar versus the Swiss franc and Canadian dollar.
Having breached the 100 DMA to the downside on October 27th, and reached a low on November 6th not witnessed since July, EUR/USD has regained some ground, not necessarily based on euro strength, more likely dollar weakness. The most dominant news concerning the Eurozone, involves the ongoing Catalonia situation which, despite its ramifications, appears to be having a limited and altogether benign effect on the region.
Monday starts the week of European, news with the latest Rightmove house price index from the U.K. and in an economy absolutely wedded to housing activity, as the catalyst of economic activity and GDP growth, this metric is closely watched. Germany’s wholesale prices will also be published on Monday morning, as will be the total sight deposits detail, from the Swiss central bank. An ECB official will deliver a speech in Frankfurt. The bank of Japan Governor Mr Kuroda will also deliver a speech in Europe on Monday, in Zurich.
In the afternoon, the USA Treasury auctions treasury bonds, and late evening the latest monthly budget statement will be published by USA authorities, forecast to deteriorate to -$58b for October, from -$45.8b in September. However, as many analysts and traders have now become accustomed to ignoring USA public debt, as it (and all the deficits) continues to rise year on year, the figure will no doubt have little in the way of impact on the value of the dollar, or the main equity markets, unless the figure beats (or misses), the forecast by some distance.
