For those economists who routinely wake up checking Donald Trump’s twitter page on a Monday morning, disappointment was not forthcoming this week.
Declaring that he would restore tariffs on a selection of imports from both Brazil and Argentina on Monday, markets tumbled as investors, having already absorbed poor US factory orders data during the day, hastily fled risk assets. The result was the largest daily fall in two months on European bourses as the spectre of the US starting another tariff war rather than attempting to heal already existing rifts left many jolted. The Eurozone was also sent reeling from a World Trade Organisation (WTO) ruling that subsidies paid to aircraft manufacturer, Airbus, supported retaliatory measures. Germany, perhaps the most sensitive to trade tensions, saw its index drop 2.1% on the day. The US dollar fell from six-month highs against the Japanese yen and a two-week trough against the euro as the news of more tariffs came in.
The dollar’s weakness was the pound’s gain, rallying to a seven-month high, pushing through £1.31 in the process. Polls this week showed that the Labour party had made little to no inroads into the Conservatives’ lead going into the last week of electioneering. With such a potential majority, the chances of a hung parliament and yet more Brexit impasse in Westminster should abate. Unfortunately, a stronger pound tends to weigh on blue chip names who earn most of their revenues in US dollars. Multinationals such as HSBC and Unilever felt the pain, sliding throughout the week, along with oil and mining majors. Commodity exposed behemoth Glencore was the main loser of the week however, tumbling 9% to a three-year low on reports that the Serious Fraud Office had launched an investigation over suspicions of bribery.
Towards the end of the week, all eyes were back on the US and once again on Donald Trump, who was by now in full ‘mixed messages’ mode. Having rocked markets earlier in the week by saying that a trade deal resolution with China may have to wait until after the election, he later changed tack by indicating all may be fine between the two world superpowers. Treasury yields rose on the news that trade talks were now in fact “moving right along” although gold prices closed with little change as investors tried to make head or tail of what was going on.
The week was rounded off, as always on the first Friday of every month, with the release of US Non-Farm Payrolls, perhaps the US Federal Reserve’s most revered piece of economic data. The US added a huge 266,000 new jobs in November, considerably ahead of consensus and helped support the view that the US economy is strong and robust as we head into 2020. There was further positive cheer with September and October’s payroll data being revised higher.
The coming week provides the home-stretch for politicians and constituents alike as Thursday sees the electorate go to the polls in one of the most important general election in years.
While there is a good chance that domestic stock and currency markets will be heavily focused on the outcome, the beginning of the week may see both potentially treading water until the complete breakdown of seats in parliament has been decided. An event that could have a last-minute baring on those undecided voters could be GDP figures, released on Tuesday. For those considering the state of the UK economy before they vote, GDP is the broadest measurement of a nation’s economic health. Acting as a gauge of the change in the total of all goods and services produced by the economy GDP is followed by UK Manufacturing Production and Construction Output, two useful pieces of information that will show just how much we are making and building as a country.
Attention should briefly switch to the US midweek as the Federal Reserve publishes minutes from its last meeting and addresses the media on its latest thoughts, giving hints and clues to the future rate policy. Although the Federal Reserve is not expected to move on rates imminently, it will be fascinating to see what its guidance holds as we enter 2020. US inflation numbers will also compliment the Fed’s words, giving us some idea if prices are finally starting to rise from what is a very tight labour market stateside.
Friday’s market movements should be dominated from the dust settling from the previous day’s UK election and the subsequent perceived pace at which the UK leaves the EU. It is with some irony then that focus should also be in Frankfurt where the European Central Bank hosts a press conference in order to transmit its views on the bloc’s economy. The press conference is about an hour long and is broken down into two parts; first a prepared statement is read with the conference then opened to press questions. The questions often lead to unscripted answers that create heavy market volatility, especially coupled with the events in Westminster.