Currency View by OFX

Last week’s news

• Boris Johnson has sent an unsigned letter to the EU formally requesting for an Extension of the Brexit deadline to end of January 2020 after the parliament voted in favour of the Letwin amendment on Saturday. Sterling dropped on the open as the market begins to digest the weekend Brexit news. Despite losing the vote on Saturday, it is not as though Boris Johnson’s deal has been completely defeated as they are set to vote again on it early this week.
• China’s economy grew by only 6% in Q3 of 2019 compared with a year earlier. This represents its slowest pace in over 30 years and has therefore dealt another blow to global growth. The country’s trade war with the U.S., its cool down on manufacturing investment and its lagging income growth all took their toll on the world’s second large economy. These gloomy numbers follow a warning from the IMF that the World Economy is set to grow 3% in 2019, 0.3% below its forecast 6 months ago.
• Kristalina Georgieva, the new head of the IMF, has called on the US and China to move towards a lasting ‘trade peace’ for the benefit of the flagging global economy, after they reached a limited truce in the commercial hostilities last week. The multilateral lender this week estimated that the persistence of trade friction would deliver a $700bn hit to the world economy by 2020.
• GBPUSD closed the week almost 2.5% higher, triggering a correction in the USD. AUD and NZD joined the party despite the weaker than expected Chinese data, closing the week 0.90% and 0.70% respectively higher.

Looking ahead

• The focus this week is likely to remain on Brexit with the only other major distractions from Purchasing Manager Index’s (Europe is Thursday and US Friday) as well as ECB president Draghi’s last meeting.
• Uncertainty around Brexit will be key, after difficult negotiations UK PM Boris Johnson surprisingly came to an agreement with the EU but the DUP party didn’t support it. Parliament forced BJ to ask for a delay, which he did but not without asking the EU to reject the request. It seems like he’ll try to get a vote on his deal on Tuesday, which has chances of being approved by Parliament. Stay tuned, the saga continues.
• Hedge funds have reversed gold long positions as global anxieties begin to recede. With trade tensions easing between the US-China, and the improved negotiations between the UK-EU looked likely to lead to a Brexit deal, hedge funds have been trimming their long positions in futures and options last week (as of 15 Oct) to its lowest level since July.
• China’s factory deflation worsened in September largely due to a fall in raw material prices and slowing output growth, adding to signs that its domestic slowdown will continue to drag down the world’s economy. As central banks step up their easing measures to help attempt to put a brake on slowing world expansion, China’s weaker producer prices will continue to test policy measures.

Key market events this week

• CAD Retail Sales MoM (Aug) – Tuesday
• AUD Skilled Vacancies MoM (Sept) – Wednesday
• NZD Trade Balance MoM (Sept) – Wednesday
• HK Exports and Imports (Sept) – Thursday
• European Central Bank Rate Decision – Thursday
• US Durable Goods Orders (Sept) – Thursday
• EUR EU Commission Economic Forecasts – Friday
• US Markit Composite PMI (Oct) – Friday
• US University of Michigan Sentiment (Oct) – Friday