Week Ahead: Brexit Vote And ECB Look To Stabilise Markets

Market Analysis /
10 Dec 2018

Brexit is the focus in the UK, the ECB in Europe and the stock market route in the US as turmoil hits global markets as the year draws to a close.

USD

This past Friday, December 7th we saw the first indication that the Federal Reserve may be rethinking the rate path as we approach the December the Federal Open Market Committee (FOMC). Fed member Bullard becomes the first official Fed to suggest that there should be a pause in rate hikes. The comments come after a series of poor economic figures culminating in a weaker than expected non-farm payroll reading. Stock markets in the US continue to suffer from heavy losses on a daily basis, this adds to the Fed’s fears and leaves investors nervous that the central bank will disappoint next week.

The US-China war of words is set to be another focus this week after the arrest of Hauwei CFO last week. The 90-day truce on trade agreed to at the G20 seems to have lasted all of a week as tensions between the two global superpowers have reached their most heightened level. The Hauwei issue, and the basic accusation that China was planning to use new 5G mobile antennas to spy all contributing to the ongoing relationship strains. These accusations are unfounded so far but the arrests add yet more tension to a situation that already threatens the stability of the US dollar.

 

EUR

This week’s rate decisions from the European Central Bank (ECB) will be the major focus for the Euro, but the state of stock markets and the global economy will also have a big say on market direction. The expectations for this week are no change in rates, with only a low risk that the ECB will extend the asset purchase program beyond the end of 2018.

On the domestic front, things are looking rather quiet, so it could be a case that the global market slowdown and global stock market rout dominate the proceedings away from Mario Draghi’s press conference.

 

GBP

There is only one topic of conversation for Sterling this week and that is of course Brexit! Tuesday sees the culmination of 5-days of debate over the Meaningful Vote, as MP’s finally get to decide whether to accept the Prime Ministers deal or reject it. The issue is that a rejection of the deal could plunge the country into limbo, with nobody really understanding what happens next. At the end of this week, the UK could also have a new PM, be heading for a general election, or be set on a path to finally leave the European Union. The issue is we just do not know what will happen.

The expectations are that Theresa May will lose on Tuesday and lose support from the DUP, the party that props up her government coalition. The reaction on the pound is likely to be huge, but with no guarantee of the result or the subsequent fallout, the directions of those moves are by no means guaranteed.

 

CAD

Oil price was a dominating factor behind the moves of the Loonie last week after OPEC and non-OPEC members agreed to cut output in a bid to raise the price, after weeks of enormous pressure. The move in oil price took the focus away from Governor Poloz and the Bank of Canada rate decision last week. This week sees oil price remain the dominating force behind the Canadian Dollar as domestic data is a little thin. Investors should also keep a close eye on the developing US-China story.

In contrast to the US labor report, the Canadian jobs data came out much better than expected. The headline unemployment rate dropped to 5.6% a record low, with the 94K new jobs created also a record. The data brings into question the date of the next rate hike by the BOC. Poloz had already commented saying the next move would likely be a hike, and these figures not only further emphasize that fact, but also bring forward rate expectations to potentially Q1 2019 rather than summer 2019.

 

AUD

House price data and business confidence figures are the domestic highlight this week. With lots of news around oil price commodity, base currencies are likely to remain focused on fluctuations on West Texas Intermediate (WTI). Last week’s developments between the US and China over the Huawei scandal has the potential to cause global uncertainty and with the Aussie reliance on the US, this is likely to be on the agenda for anyone with Aussie risk. The arrest of the Huawei CFO moves the trade war to the next level and makes the prospect of a deal occurring between the two nations during the 90-day truce particularly unlikely.

 

NZD

Inflation gauge data from ANZ bank will be the focus early in the week for New Zealand, but the Kiwi Dollar is a commodity-based currency meaning it is hard to escape the oil price story. Last week’s output cuts from OPEC and non-OPEC nations saw oil jump, taking the likes of the Kiwi, Aussie and Loonie with it. The discussions may now be over, but investors will want to see a continuation of upside moves in oil to acknowledge that the output cut is actually working. Last time we saw a big output cut, it was over 9 months before we saw a material effect on the price.

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