Trump-China Effect, Pound and Euro Hold Ahead of Brexit and the Catalan Elections

• Trump was surprisingly upbeat during his China visit, how has this tone affected the markets? The outcome of Trump’s discussions with the Chinese Premier was certainly a positive for the markets and particularly for the Asian markets who are dependent upon demand from China and global demand for China’s goods and services.

Talk of trade tariffs would have been particularly negative for the markets and even more so with the markets already jittery over the U.S tax reform bill.

The positive news was overshadowed by the negative sentiment towards the likely progress of the tax reform bill, but Trump’s willingness to have dialogue and not just impose punitive tariffs on China is positive news. Some of the U.S. multinationals will likely be breathing a sigh of relief when considering reliance on Chinese goods, not to mention ever-increasing sales volumes in China.

It’s quite a turnaround from Trump’s campaign trail, where he had dubbed China the trade devil. One does wonder how much this has to do with North Korea. If Trump took the old tact, China could well have stepped back from dealing with North Korea during the current crisis. We’ll see whether Trump begins on talking about trade tariffs once the North Korea issue is resolved.

For now a positive effect on the markets.

• A quieter week for the GBP this week, however with Brexit talks resuming, how do you expect Sterling to react?

It’s not looking too good for the Pound or the UK economy for that matter. The Conservative Party’s far right continue to push for a hard Brexit and some may even be looking for a “no deal” outcome. With Theresa May having lost considerable support, negotiating power has certainly weakened, giving Tory Party rebels more voice.

With the British Prime Minister has officially set the time and date of Britain’s departure from the EU, 11 pm GMT, 29 March 2019, we’re going to need to start seeing some progress in the coming weeks.

A lack of progress will weigh heavily, not only on the Pound but also on the UK economy. We will expect the Pound to be particularly sensitive to updates on the Brexit negotiations and let’s see how the UK government has progressed over the last two days.

• Finally, here are new Catalan elections coming up in December, how do you expect the Euro to react to this?

The EUR has managed to hold up pretty well. The upcoming elections are likely to go to a pro-independence party with the parties within the coalition going it alone in these elections. Such an outcome is not going to help the Spanish government quash the continued calls for independence.

We could see a pro-independence movement rise in Spain, which would disrupt the Spanish economy, particularly if the movement becomes widespread. Calls for democracy and the growing number of parties facing the demand for sovereignty could spread beyond Spain, which would be a negative for the EUR, especially with the upcoming elections. And we’ve seen what’s happened to Merkel in Germany.

While such events would be a negative for the EUR, I wouldn’t expect too much impact until protests become more widespread.

Spain is the Eurozone’s 4^th largest economy and, while the ECB is upbeat about the economy, any soft numbers out of Spain will likely impact the EUR and the Eurozone economy.

So neutral for now, but negative should we see the rise of a pro-independent movement.