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OANDA Senior Market Analyst Craig Erlam previews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.
This week they discuss the positive developments in US-China trade talks and Brexit, the attack on the Iranian oil tanker and earnings season.
The full podcast and video recording are below.
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OANDA Senior Market Analyst Craig Erlam discusses USDJPY, what’s pushed it back into bullish territory and whether he thinks it will stay there.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
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OANDA Senior Market Analyst Craig Erlam discusses GBPUSD after the pair bounced off a key support level on the hope that no-deal Brexit will be avoided.
Posted 16 minutes ago
Following a week that was filled with critical updates with the US-China trade war, markets will now focus on the beginning of earnings season, Brexit negotiations, a wrath of Chinese data that will look to see if GDP growth will test below 6% for the first time, and annual meetings from the IMF, which will deliver downward revisions to global growth forecasts when they present the latest World Economic Outlook.
Over the weekend, Chinese President Xi and Indian Prime Minister Modi hold informal meetings. On Sunday, Poland will hold elections were the ruling Law & Justice party are heavy favorites to win. Hungary also holds municipal elections.
Earnings season kicks off with the big banks (JP Morgan, Citigroup, Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley) and financial firms. We also see results from Johnson & Johnson, Netflix, IBM, Coca-Cola and United Airlines. If we see drastic cuts to guidance early this earnings season, we could see that be the trigger that finally turns the recent 5% pullback into a 10% correction.
We could see the fourth Democratic debate on Tuesday be a pivotal turning point for former Vice President Joe Biden as he looks to regain momentum from a surging Elizabeth Warren. If Senator Warren continues to rise in the polls, we could start to see diminishing forecasts for a bright 2020 for US stocks and that could weigh on USD/JPY.
On Friday, there are ratings reviews on UK (Fitch), Oman (S&P), and Croatia (Moody’s).
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The US and China were able to make a partial deal, setting up hopes for a prolonged trade truce. The positive trade update took US stocks are higher and is putting the pressure on safe-havens. The deal is tentative and subject to change as President Trump gets ready to meet with Chinese Vice Premier Liu He later today. Presidents Donald Trump and Xi Jinping could finalize this partial deal later today.
US equities could resume the march toward uncharted territory if we see continued a de-escalation in all tariffs over the coming weeks. Optimism is likely to remain in place and we could start to see the outflows from safe-havens help trigger a major emerging market rally. The bottom could be in place for the US dollar, but traders will still require more concrete progress in trade de-escalations.
Lira
Lira volatility stemmed from the Trump administration decision to get fresh sanctions ready on Turkey. Treasury Secretary Mnuchin noted they will not move forward with them just yet, but the call seems like a contradiction to this week’s earlier decision to pull back some US forces from Northern Syria. Earlier the lira sold off after President Putin noted some Islamic State prisoners could escape as a result of Turkey’s military attacks in Syria. The situation in Turkey has yet to yield a major market reaction, but if we US sanctions enforced, that could be a game changer.
Oil
The initial surge with oil prices after an Iranian tanker was hit by missile was somewhat short-lived as markets remain focused on the near-term outlook for demand. The blame for the missile attack was initially placed on Saudi Arabia, but that has been somewhat rescinded. Saudi Arabia has yet to react to the September drone attack. The attack most likely came from either the Saudis or Israelis.
The situation in the Middle East is likely to remain tense and markets are eagerly awaiting the Iranian response which could come as a cyber or military attack.
Adding fuel to the fire that is the tensions in Middle East was the news that the US will send about 1,800 troops to help defend Saudi Arabia.
Oil prices should be supported on tensions from the Middle East and a boost to demand forecasts on growing optimism we will see a major de-escalation in the US-China trade war.
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The Canadian dollar strengthened to a four-week high against its U.S. counterpart on Friday after domestic data showing a much bigger-than-expected jobs gain in September supported bets for the Bank of Canada to keep interest rates on hold this month.
The Canadian economy added 53,700 jobs in September, the second straight month of robust jobs gains, Statistics Canada data showed. Analysts had forecast a gain of 10,000 jobs
Chances of a Bank of Canada interest rate cut at the October 30 policy decision dipped to 7 per cent from 9 per cent before the data, the overnight index swaps market indicated.
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Consistent with its January 2019 Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, the Committee reaffirms its intention to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. To ensure that the supply of reserves remains ample, the Committee approved by notation vote completed on October 11, 2019 the following steps:
These actions are purely technical measures to support the effective implementation of the FOMC's monetary policy, and do not represent a change in the stance of monetary policy. The Committee will continue to monitor money market developments as it assesses the level of reserves most consistent with efficient and effective policy implementation. The Committee stands ready to adjust the details of these plans as necessary to foster efficient and effective implementation of monetary policy.
In connection with these plans, the Federal Open Market Committee voted unanimously to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:
"Effective October 15, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to purchase Treasury bills at least into the second quarter of next year to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.
© federalreserve
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Hopes of a breakthrough in U.S.-China trade talks put emerging- market stocks on course for their biggest percentage gain in a month on Friday, while South Africa’s rand, the Korean won and the Chinese yuan all gained as the dollar weakened.
Chinese stocks enjoyed their best weekly gain in five weeks after U.S. President Donald Trump on Thursday called the first day of trade talks with China in over two months “very, very good”.
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Gold futures headed lower Friday, putting bullion on track to record its steepest weekly drop in more than a year and lowest settlement month to date, amid growing optimism on Sino-American trade talks and progress on Brexit.
December gold on Comex GCZ19, -1.44% was down $20.10, or 1.3%, to trade at $1,480.80 an ounce, falling further below the psychologically significant level at $1,500. Bullion’s decline, if it holds, would push the most-active gold futures contract to its lowest settlement and sharpest daily slump since Sept. 30, according to FactSet data.
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U.S. President Donald Trump said on Friday that U.S.-China trade talks were going well as the second day of top-level negotiations aimed at rolling back tensions between the world’s two largest economies begins.
“Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!” Trump wrote in a post on Twitter.
