Key Points From This Week
The New Zealand Dollar has been the standout performer among the G10 currency pack this week. Encouraging signs that the US and China will sign a trade deal this month is seeing the kiwi back in demand. The Canadian Dollar has been the weakest performer over the week, however. While the BOC refrained from cutting rates at the November meeting this week it signalled that a rate cut will likely be appropriate in the near future.
FOMC Rate Cut
The main item on the agenda this week was the October FOMC meeting. A rate cut was well pries in ahead of the meeting which saw the Fed satisfying market expectations by lowering its headline rate once again. This latest cut is the third 25 basis point reduction the Fed has made this year, taking its headline Fed funds rate down from 2.5% at the start of the year to current lows of 1.75%. The Fed was keen to stress that it will hold off on any further adjustments for now while it monitors the impact of this easing. The market is now only pricing a 20% chance of a December rate cut.
Subdued US Employment Reports
The US Non-Farm Payrolls on Friday came in stronger than analyst projections of 85,000 jobs at 128,000 jobs for October. However, the reaction in USD was muted given the 0.1% increase in the unemployment rate. Average hourly earnings were also slightly lower than expected, rising 0.2% on the month, just below the projected 0.3% increase.
UK Elections Called
Brexit negotiations have morphed again this week. On the back of the EU granting the UK’s request for a January 31st Article 50 extension, the picture has become murkier with UK parliament passing the PM’s call for general elections on December 12th. The elections could have a major impact on the outcome of Brexit as the three main parties are split over how to proceed, meaning that this campaign will draw a lot of trader attention.
US / China Trade Deal
The S&P500 made strident gains early this week, printing new all-time highs as investors were riled up by comments from President Trump who said that negotiations with China were “ahead of schedule” and noted that a deal was coming soon. The market is expecting the two countries to sign off on the previously announced “phase one” trade deal at the APEC meeting in November.
Key Events Next Week
US Non-Manufacturing
October’s non-manufacturing data will be closely watched next week given the weakness seen in the last reading. While the Fed has signalled a willingness to hold off on any further rate adjustments this year, any meaningful misses in key indicators will certainly see rate-cut expectations start to rise again. Friday’s employment reports did little to suggest that the economy is picking up and is keeping investor attention on negative surprises in the near term.
BOE Rate Decision
The November BOE meeting will take on central focus next week given the fresh delay to Brexit. A leading BOE policymaker last month warned that should Brexit be delayed again, the bank could be forced to cut rates in order to keep the economy supported amidst ongoing uncertainty. Expectations are divided ahead of the upcoming meeting though downside risks are noted.
Keep An Eye On
Brexmas Election Headlines
As the market gears up for another UK election (the third general election in four years) the usual rollercoaster of poll releases, candidate headlines and negative news stories is likely to fuel plenty of volatility. Given how closely this election is linked with the outcome of Brexit, expect this dynamic to be even more prevalent this time around.
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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!