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Last week’s news

• There was finally a change in tune for UK politics as the parliamentary parties began their campaigns for the UK election which is to be held on December 12th. The head of the Labour Party, Jeremy Corbyn, set the tone of his election campaign last Thursday with direct attacks on the ‘privileged few’ who benefit from a ‘corrupt system’ as he goes after the UK’s millionaires and big businesses.
• Boris Johnsons hopes of securing a post-Brexit trade deal with the U.S. have been thrown into doubt as Donald Trump warned that such a deal may not be possible. Mr Trump, in a radio interview with Brexit Party leader Nigel Farage, said that under ‘certain aspects’ of Mr Johnson’s Brexit agreement, ‘we can’t make a trade deal with the U.K.’. Brexiteers have long hailed a U.K./U.S. trade deal as the biggest single economic benefit of leaving the E.U. Downing street defended Mr Johnson’s Brexit deal, saying it would allow Britain to ‘strike our own free trade deals around the world’.
• It was an important week as we waved goodbye to Mario Draghi as Head of the European Central Bank. Draghi was credited with saving the Eurozone from implosion amid the debt crisis earlier this decade with his now-famous “anything it takes” speech, which signalled the start of the ECB’s Quantitative Easing program. The former head of the IMF, Christine Lagarde, took office last Friday and she didn’t waste time into calling out Germany and Netherlands budget surplus to be used to rebalance the Eurozone. She also defended her predecessors and negative interest rates by adding “we should be happier to have a job than to have our savings protected”.
• The Nasdaq and S&P500 followed the positive mood of Asian and European markets and then climbed to fresh record highs last Friday as jobs data in the U.S. came better than expected in October. Non-Farm Payrolls rose by 128k last month, exceeding expectations and defying concerns that a strike at General Motors would weigh on the labour market. This followed earlier gains after China’s manufacturing sector posted the fastest expansion in two years.
• All eyes were on the U.S. Fed last week as the Federal Open Market Committee cut its main financing rate from 2% to 1.75% as widely predicted. The main talking point was Fed Chairman Jay Powell indicating the policy rate was now appropriate given economic conditions, so the chances of another move lower before Christmas have dropped to zero. Although a reduction in chances of another cut should have strengthened the dollar, it appears the better than expected GDP figure (1.9% vs. exp 1.6%), a Brexit extension being agreed upon, and confirmation of ongoing dialogue between China and the U.S. on trade saw the US dollar’s initial move higher being reversed by better risk appetite.

Looking ahead

• The race to head the Bank of England is still an open game. Mark Carney is due to leave his post at the end of January 2020 and the UK Treasury said that no decision regarding his replacement would be announced until after the UK general election on 12th December. The two favourites in the running are speculated to be Minouche Shafik, currently head of the London School of Economics alongside former deputy BoE Governor Paul Tucker. If Shafik is selected, she will be the first ever female head of the Bank of England.
• The Fed’s language was left entirely unchanged, except for the elimination of the willingness to “act as appropriate” to sustain the expansion. However, the ISM non-manufacturing PMI, which will be released this week in the U.S., will be pivotal as market participants hope to seal their expectations that the Fed will stay put in December. If there is a recovery in the ISM, it will dissipate fears that the slowdown in manufacturing has expanded to the service sector, and it might be positive for the greenback.
• The risks of market participants misplacing their optimism for a breakthrough in trade tensions are still here, and a very remarkable last week in the U.K. has set the British Pound for a gain of over 1%. However, the vulnerability of the Conservatives in Scotland and some Southern-English areas suggests caution when Brits are sent to the polls on Thursday December 12th, based on the latest sterling performance, the FX market seems to be positioned for a Conservative majority win.

Key market events this week

• AUD Retail Sales MoM (Sep) – Monday
• RBA Cash Target Rate – Tuesday
• NZD Unemployment Rate and Change YoY (Q3) – Wednesday
• Bank of England Bank Rate & Inflation Report – Thursday
• German Industrial Production MoM (Sep) – Thursday
• CNH Trade Balance MoM (Oct) – Friday
• CAD Unemployment Rate and Change (Oct) – Friday
• US University of Michigan Sentiment (Nov) – Friday
• China CPI & PPI (Oct) – Saturday