Dire Data out of the UK And the Trade Deal Test the Pound and Risk Appetite this Week

It was a busy 1st half of the week for the markets. Trade and economic data were in focus.
Bob Mason
Financial stock market numbers and forex trading graph, business and stock market data, financial investment concept on bull and bear shapes symbols background.

Let’s start with the main talking point of the week, the Trade 1 Agreement, it’s been over 2 years of negotiations between the US and China. Are they close to an agreement and what can we expect when the details are made public and how it will affect the markets?

The U.S and China finally signed phase 1 of the trade agreement on Wednesday.

While the event was U.S market positive, a number of issues will not only test risk appetite bit also China’s willingness to stick to the script.

  • Broader trade tariffs will remain in place until after the U.S Presidential Election in November of this year.
  • The U.S can ban the sale of tech to Huawei.
  • China has agreed to crank up U.S agri imports, whilst still under pressure from tariffs.

We’ve seen China renege on such agreements before. Continued pressure on the Chinese economy could see the agreement collapse and remove any chance of a full-blown agreement.

It’s been a Busy Start to the week on the Economic Calendar, has it gone to forecast?

It has been a relatively busy first half, with the stats skewed to the negative relative to forecasts.

Much of the negativity stemmed from economic data out of the UK that raised a number of red flags for the BoE to consider.

  • The UK economy saw growth slow to a 7-year low of 0.6%.
  • In November, the economy contracted, suggesting more pain to come when factoring in industrial and manufacturing order numbers that also disappointed.
  • On the inflation front, the annual rate of inflation eased to a 3-year low 1.3%, falling well below the BoE’s target.
  • A narrowing in the UK trade deficit was of little consolation for the Pound.

The BoE had forecast a pickup in economic activity at the turn of the year. The latest figures suggest that the BoE may not be able to hold out any longer.

This view was reinforced by the increase in the number of dovish members delivering policy outlooks in recent days.

December retail sales figures could be the straw that broke the camel’s back…

A busy start in the Eurozone, with the ECB president due to speak this week, what can we expect?

ECB President Lagarde is due to speak late on Thursday after the ECB monetary policy meeting minutes are released.

– We don’t expect any talk of further monetary policy support following January’s prelim private sector PMI numbers.

– There may be some chatter on the review of the ECB policy framework.

– We could also hear some negative chatter on Brexit and a call for member state governments to crank up fiscal support.

What figures can we expect out of Australia? Can we expect any movement from the Aussie?

There were no major stats out of Australia through the 1st half of the week.

We saw the Aussie Dollar find support from the phase 1 trade agreement but that was just one piece of the puzzle.

The bushfires, however, are expected to weigh on consumer spending and confidence. As a result, we have seen the probability of a rate cut rise to above 50% at the next meeting.

That makes the Aussie all the more sensitive to next week’s consumer confidence and employment numbers. The figures will give some indication of what lies ahead on the spending front.

The upside in the Aussie Dollar should, therefore, be limited, though we could see a brief pickup if GDP numbers out of China impress on Friday…

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