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The Week Ahead: Thanksgiving Punctures The Week As Brexit and Trade Remain Front And Centre

Market Analysis /
19 Nov 2018


 Trade and rate hikes are the topics of conversation this week, especially after last week’s mixed bag of macro-economic data. While inflation data was stable at 2.5% retails sales out of the US came in much weaker than expected, as weather based issues hit the headline numbers. The prospect of this having a knock on effect on the rate conversation for December caused a small murmur in the US dollar last week, but expectations for another 25 basis point rate hike still remain above 75%.

It’s a shortened week this week in the US with the Thanksgiving holiday meaning volume will be low and will fall as the week moves on. With this in mind we can expect to see more in the way of volatility and market swings.

The story that could refocus investors this week is the US-China trade talks, and potential meeting of President Trump and Premier Li at next week’s G20 summit. Over the weekend the US President boosted market hopes (which can be a dangerous thing) saying “I think a deal can be made. We’ll find out very soon.” It’s important to be cautious over headlines like this, as Trump has made similar remarks in the past. This time could be different however, as the comments came after Trump has seen an initial list of issues for negotiation.



It’s a quiet week for the Eurozone from a data point of view, but again there is a focus on both the budget standoff between the Italian coalition government and the European Commission, and the state of the Eurozone economy, there is also the small matter of Brexit. The Eurozone economic story remains challenging, especially after last week’s negative GDP readings. The Eurozone as a whole posted growth year on year of 1.1% vs the expectations of 1.3% and a previous reading of 2.3%. This can largely be attributed to the performance of the German economy as numbers for the same time frame actually saw the German economy contract to -0.2% on a quarterly basis.

Italy have until Wednesday to meet the European commission’s guidelines on its most recent budget. However it seems the issues remain with Italy’s debt to spending ratio far exceeding the commissions guidelines, and there refusal to concede on the matter. This saga very much centres on just how tough the European Commission want to be with Italy, knowing that a hardline stance will only be used by the political parties in Italy for political gain.



We are all in no doubt of the big risk event for Sterling this week. The fallout from last weeks cabinet meeting has seen a number of key members of Theresa May’s close team resign over the deal, including the Brexit Secretary Dominic Raab, the main who negotiated the deal! The start of the week has seen the calls for a vote of no confidence grow louder as the Prime Minister looks to hang on to her job. The draft deal that has been roundly attacked by MP’s in the UK is set to go to parliament for a vote in December, although we are still unaware if Theresa May will make it to then.


Brexit itself remains in question due to the vote in parliament, the PM has warned that if MP’s failed to vote through the Brexit deal it will take talks back to square one, with no guarantee that the EU would be willing to negotiate further. The prospect of the UK heading into a no deal Brexit is a scary one for Sterling position holders, with the prospect of deep downside for the currency if a deal cannot be agreed.



It’s a data heavy couple of weeks in Canada that could well be pivotal when it comes to the next interest rate decision from the Bank of Canada. Expectations remain low that the December BoC meeting will see a rate hike, but with the trade deal with the US and Mexico complete there is a lot of focus on the data. This week sees CPI and retail sales due for release, with the former expected to remain at 2.2%, still in the 1-3% target range. A positive set of numbers this week will be a welcome break from some bleak readings, especially in the retail sector, but may not be enough to lift the interest rate hike probability far above its current 11.7%.



With no data due for release from Australia this week it’s going to be the US dollar and the oil price that dominates the currency direction. Such are the ties with China and the US that the trade discussion, and the will they won’t they nature of trade talks at the G20 will likely cause market swings. The Aussie will be helped by the slight recovery in oil prices last week. WTI saw a move from lows of $54.70 to highs at $58 week, easing some of the pressure. However with Russia and the US making nervous noises about the low prices, we wait any more rhetoric from either camp to push prices higher.



 It’s a quiet week on the macro data front in New Zealand this week, and with the US Thanksgiving holiday we could see a subdued week of trading. Both oil prices, and any further positive noises about the US-China trade deal will be a driving force as the Kiwi struggles for direction. US President Trump’s comments over the weekend helped to ease some of the pressure building, but his positivity surrounding  the potential of a deal is best viewed with caution.

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