Last week’s news
- Boris Johnson conceded defeat on his promise to take the UK out of the EU by October 31st and has challenged MP’s to give him a General Election which, if passed, would be held on December 12th. He indicated that if his motion for a General Election before Christmas was defeated, he would freeze his Brexit legislation (which has already gained a majority in parliament when it was voted on in principle) and turn Westminster into a ‘zombie parliament’. If his demands are met, he would bring the Withdrawal Agreement back to the Commons and would give MP’s until November 6th to properly scrutinize his Bill.
- Mario Draghi wrapped up his final monetary policy meeting as head of the ECB by leaving interest rates unchanged last week at -0.5% and stuck to the existing package of loosening measures that were announced last month. The ECB repeated its position and stated interest rates would only rise ‘until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2%’. Christine Lagarde will take as head of the ECB this week and Mr Draghi said ‘no advice was needed’ for his successor on how to do the job.
- US representatives said US/China talks progressed positively and Trump said China wants a trade deal; global equities closed the week on positive territory. Currency movement was limited, with majority of majors losing some ground against the USD. EUR, GBP, AUD, CHF, NZD were down between 0.6%-1% and the CAD was the main winner, strengthening 0.25% against the USD.
- This week see’s 3 major central banks reassess their country’s interest base rate. The FOMC is likely to announce a rate cut when they meet on Wednesday and the Bank of Japan could also introduce a rate cut when they sit on Thursday. The Bank of Canada is likely to keep its current policy unchanged.
- The Fed is largely expected to cut this week, but it will be watched closely whether Chairman Jerome Powell discusses the recent division within the FOMC committee on forward guidance along with potential announcements of a more permanent facility for repo´s, which have been gathering a lot of attention recently. A few hours before the FED announcement, markets will get a first peek at the economy through Q3 GDP. Then, to finish the week, job data and ISM figures should provide some forward-looking insight.
- One-year implied volatility in the Euro fell to its lowest level in 12 years. This was on the back of outgoing ECB president Mario Draghi reiteration that the ECB stimulus will be needed for a prolonged period. This is interesting given Yen volatility for 1 year, which incorporates the 2020 US elections next November, has surged. A potential pick-up on Volatility could happen on Tuesday, when we’ll hopefully get more details from the EU around Brexit extension.
Key market events this week
- US Advance Goods Trade Balance (Sept) – Monday
- US Consumer Confidence Index (Oct) – Tuesday
- AUD Consumer Prices Index YoY (Q3) – Wednesday
- Bank of Canada Rate Decision – Wednesday
- US GDP (Q3) – Wednesday
- US FOMC Rate Decision – Wednesday
- AUD Building Approvals (Sept) – Thursday
- Bank of Japan Rate Decision and Outlook Report – Thursday
- Hong Kong GDP & Retail Sales (YoY) – Thursday
- Eurozone GDP (Q3) & CPI (Oct) – Thursday
- CAD Gross Domestic Product YoY (Aug) – Thursday
- China Manufacturing PMI (Oct) – Friday
- US Change in Non-Farm Payrolls (Oct) – Friday
- US ISM Employment and Manufacturing (Oct) – Friday
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