News & Analysis

Weekly Summary: Volatile Markets Driven by Headlines

October 11, 2019

Weekly Summary

The week was primarily dominated by trade-related headlines ahead of the key meeting in Washington that could decide the path of the 15-month long trade dispute between the two world’s largest economies.

US-China Trade Negotiations

The price action in the markets were headlines driven. Trade tensions being the main impediment of the global slow growth is forcing investors to hold on to any positive development that could lead to a trade deal. Even though a trade deal looks far from being conclusive, market participants are looking for factors that could de-escalate tensions between the two countries.

However, ahead of the meeting that started on Thursday, negative headlines which could potentially increase tensions flooded the markets.

Monday

The news that China’s Vice Premier looks set to refrain from commitments on reforming Chinese industrial policy or the government subsidies along with impeachment inquiry on President Trump set a bearish tone in the financial markets.

After the close in New York, the US blacklisted 8 Chinese companies including Hikvision based on human rights violations.

Tuesday

The US has imposed visa restrictions on Chinese government and Communist Party officials who are believed to be responsible for the detention or abuse of Muslim minorities in Xinjiang province.

Wednesday

Positive comments were coming from the US despite the inclusion of top Chinese artificial intelligence start-ups in a trade blacklist. However, in a late statement on Wednesday, China stated that it has lowered its expectations for the US trade talks after the blacklist.

Thursday

Despite the controversial tweet from President Trump putting cold water on the trade negotiations, the news that he will meet China’s chief trade negotiator at the White House calmed investors’ nerves that struggled to keep up with the conflicting headlines.

The conflicting trade headlines and uncertainties roiled markets this week.

Stock Market

The expectations of a breakthrough were low at the start of the week, but the President Trump’s meeting with China’s lead negotiator has renewed optimism that there may be some positive developments towards a “partial” trade agreement. A trade war that has stoked global recession fears since last year forced investors to trim expectations of any comprehensive trade deal at this stage, but rather a possibility of a trade truce.

The stock market turned green on Thursday amid a fragile risk appetite. As of writing, trade optimism is helping the Asian markets to stay in positive territory

World Equity Indices

Source: Bloomberg Terminal

In the FX space, major currencies were stronger against the US dollar towards the end of the trading week. The British Pound is the best performing G10 currencies against the US dollar so far mostly due to the latest positive Brexit headlines.

The Antipodeans received a boost on trade news while the safe-haven currencies like the Japanese Yen and Swiss franc lost their appeal and fell against the greenback as risk sentiment has improved.

Turkey and Tensions in the Middle East

In a move that took the world by surprise, President Trump pulled US troops out of north-eastern Syria in advance of a planned Turkish military operation against Kurds. The US President came under heavy criticism for failing to protect the Kurdish forces that helped the US to fight the ISIS group.

For CFD oil trading, the tensions in the Middle East helped oil prices to stabilise. On the demand outlook, a damaging trade war and a build in US crude oil inventories this week weighed on oil prices. However, the military operation against Kurdish fighters which could disrupt crude production in the region and renewed hopes of a partial trade between the US and China helped to ease the bearish pressure on oil prices.

As of writing, WTI and Brent Crude is currently trading higher in the vicinity of $53 and $59 region.

UKOUSD and USOUSD (Hourly Chart)

Source: Bloomberg Terminal

Brexit – Crunch Time

The epic struggle to get Brexit done has been exhausting for many. As the clock for Brexit is ticking, it was a crunch week whereby Prime Minister, Boris Johnson tried to convince the EU and Northern Ireland of his new plans.

After much debate, and uncertainties, market participants saw a glimmer of hope for a resolution to Brexit as both Boris Johnson and Taoiseach Varadkar in a joint statement agreed that they could see a “pathway” to a possible deal.

It is not a done deal yet but it was positive enough to allow negotiations to resume in Brussels. Ahead of the EU summit next week on 17 and 18 October which is potentially the last chance for the UK and the EU to agree on a deal, the British Pound surged decisively higher.

After consolidating in the 1.22 level, the GBPUSD pair rose in the region of 1.24.

Source: Bloomberg Terminal

Monday, 14 October 2019 Indicative Index Dividends ^{Dividends are in Points}
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
0.026	0	0	0	0	0	0
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
0	0	0	0	0	0	0

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