September 30, 2019
GEOPOLITICS
GLOBAL TRADE WAR
Trade talks between the United States and China are set to resume on October 10 in Washington, CNBC reported in late September. The new round of talks is to come amid reports that President Donald Trump’s administration is considering delisting Chinese companies from U.S. stock exchanges. Bloomberg, however, reported, citing a U.S. Treasury official, the United States does not currently plan to stop Chinese companies from listing on U.S. exchanges. Meanwhile, a separate report said that the United States is unlikely to extend a waiver allowing American firms to supply China's Huawei Technologies. The report, which cites an official, raised concern that both countries could struggle to reach a trade deal when they meet in Washington in October.
Possible Influence: The US dollar could be expected to remain under pressure along with the Euro, the Australian dollar and the Japanese yen. The Chinese yuan (CNH) along with the global stocks, including those of the US, and oil prices could be expected to remain under pressure. Gold is also expected to rise in volatility.
USA
The House of Representatives impeachment inquiry into President Donald Trump over his request that a foreign power investigate a domestic political rival is set to intensify in October with testimony due from witnesses concerning allegations made by a whistleblower within the U.S. intelligence community. The whistleblower’s complaint cited a July 25 telephone call in which Trump asked Ukrainian President Volodymyr Zelenskiy to investigate Joe Biden, one of the leading Democratic candidates seeking to challenge him in 2020, and his son Hunter, who sat on the board of a Ukrainian gas company. Democrats have accused Trump of pressuring a vulnerable U.S. ally to get dirt on a political rival for personal political gain. Trump’s July 25 phone call came after he froze nearly $400 million in aid intended to help Ukraine deal with an insurgency by Russian-backed separatists in the eastern part of the country. The aid was later provided. The House Intelligence Committee is leading the impeachment inquiry. The inquiry in the Democratic-led House could lead to approval of articles of impeachment against the Republican president and a subsequent trial in the Republican-led Senate on whether to remove Trump from office.
Possible Influence: Volatile US dollar, Gold and US Stock Indices
BREXIT
Several options have been discussed between Britain and the EU in recent weeks, but No10 has stressed they don't represent a formal position. Boris will know whether there's any chance of securing a Brexit deal by the end of week of October 7, after he submits the official proposal. If a deal can be done, the PM and EU leaders will sign it off at a special summit on October 17 and 18. However, many are skeptical that Boris can get an agreement over the line. Boris has insisted that he wants to get a deal with the EU - and is doing all he can to get one. But he has stressed that if he cannot, Britain will leave the bloc on October 31 without one. The PM has insisted he will not seek another extension from Brussels, even though a new law forces him to. And he has stressed at the same time that he will obey the law.
Possible Influence: Volatile UK Pound
MIDDLE EAST TENSIONS
Saudi Arabia’s crown prince warned in an interview broadcast that oil prices could spike to unimaginably high numbers if the world does not come together to deter Iran, but said he would prefer a political solution to a military one. The crown prince, in an interview conducted in late September in Saudi Arabia, said he agreed with U.S. Secretary of State Mike Pompeo that the September 14 attacks, which damaged the world’s biggest petroleum-processing facility and knocked out more than 5% of global oil supply, were an act of war by Iran. But he said he preferred a peaceful resolution because a war between Saudi Arabia and Iran would collapse the global economy. The United States, European powers and Saudi Arabia have blamed the attacks on Iran. Tehran has denied any involvement. Instead, the Iran-aligned Yemeni Houthi rebel group claimed responsibility.
Possible Influence: Volatile Oil and Gold prices
OIL MARKETS
Saudi Aramco has restored Saudi Arabia’s oil production capacity to 11.3 million bpd—the level before the attacks on oil facilities ten days ago, Reuters reported in late September. Separately, people familiar with the situation at Aramco told Bloomberg that Saudi Arabia is recovering from the September 14 attacks faster than expected—about a week faster than Saudi officials have given as a date to recover the full capacity, the end of September.
Possible Influence: Volatile Brent and Crude Oil prices
US EARNINGS SEASON (October- November)
US Earnings Calendar brings a lot of excitement as usual. Third quarter reports will capture investors’ attention whose pace is expected to intensify after October 15. The banking sector is expected to open the new season with Citigroup, JPMorgan, Goldman Sachs and Morgan Stanley to be first in line. In October as well, Netflix, Microsoft Corporation, Paypal, Intel, Apple Inc., McDonald’s Corporation, Alphabet, Amazon.com Inc., will be among the companies that will report their quarterly earnings.
Possible Influence: US Stocks and Indices
CENTRAL BANKS
The central bank will hold its monthly board meeting on October 1 where a cut in the cash rate to 0.75% from 1.00% is expected to be endorsed (the third reduction this year). Reserve Bank governor Philip Lowe in a speech in late September said while he is optimistic the economy has seen a gentle turning point, it was not unreasonable to expect a further easing in monetary policy. He is concerned there are increasing downside risks to global growth, weaker than expected domestic growth, a rising unemployment rate and a stalled pick-up in wages growth.
Possible Influence: Volatile AUD
The European Central Bank cut interest rates and unexpectedly relaunched a quantitative easing programme as well to boost the region’s economy. The bank said in a conference in Frankfurt, Germany, in September that it would cut its deposit rate by 10 basis points, to -0.5% from -0.4%, and purchase 20 billion euros' worth of bonds a month starting in November. The ECB also plans to introduce a tiered system to exclude some of the banks that would be suffering from negative rates — something that has been done in Japan and Denmark already. Mario Draghi, the head of the ECB, will be stepping down from the role this fall and is to be replaced by Christine Lagarde, the head of the International Monetary Fund.
Possible Influence: Volatile EUR
Turkey's central bank cut its policy rate by 325 basis points to 16.5% in September, its second marked policy easing in two months as it seeks to boost a recession-hit economy in which inflation has recently eased. A recent drop in inflation and a shift among the world's major central banks to more accommodation has supported the lira and paved the way for Turkish rate cuts, which are set to continue until year end.
Possible Influence: Volatile TRY
The US central bank has cut interest rates for only the second time since 2008 in September, amid concerns about slowing global growth and trade wars. As expected, the Federal Reserve lowered the target range for its key interest rate by 25 basis points to between 1.75% and 2%. The bank said the cut is aimed at shoring up the US economy, amid uncertainties about future growth. But officials were divided about the decision and over the need for future cuts. Seven members of the Federal Reserve Open Markets Committee, which sets the rates, voted in favour of September’s cut, including Mr. Powell. Two members wanted to hold the rate steady, while one wanted to cut further.
Possible Influence: Volatile US dollar, Gold and US Stock Indices
The Bank of Japan hinted it may ease monetary policy at its next meeting, citing the risk of losing momentum toward its inflation target. The BOJ left policy unchanged at its regular policy meeting in September, a contrast to easing actions in the past week by the Federal Reserve and the European Central Bank. But Governor Haruhiko Kuroda said the BOJ would take a closer look during its Oct. 30-31 meeting, given the weakness in overseas economies and protectionist moves which he didn’t specify. Inflation has been running below 1% recently, short of the BOJ’s 2% target. The BOJ said in its policy statement that it needs to pay closer attention to the possibility that momentum toward achieving the price stability target will be lost.
Possible Influence: Volatile JPY
ECONOMIC CALENDAR
Job growth continued at a tepid pace in August, with nonfarm payrolls increasing by just 130,000 thanks in large part to the temporary hiring of Census workers. The increase fell short of Wall Street estimates for 150,000, while the unemployment rate stayed at 3.7%, as expected. Wage growth remained solid, with average hourly earnings increasing by 0.4% for the month and 3.2% over the year.
Possible Influence: Volatile US Dollar, Gold and US Stocks
Federal Reserve Chair Jerome Powell is to speak. As head of the Fed, which controls short-term interest rates, he has more influence over the U.S. dollar's value than any other person. Traders closely watch his speeches as they are often used to drop hints regarding future monetary policy.
Possible Influence: Volatile US Dollar, Gold and US Stocks
Consumer prices slowed in August, rising by a slight 0.1%, reflecting a big drop in the cost of gasoline and other energy products. With energy costs falling in August for a third month out of the past four, the overall price increase slowed leaving consumer prices rising a modest 1.7% over the past year. Core inflation, which excludes volatile food and energy costs, rose 0.3% last month and 2.4% over the past year.
Possible Influence: Volatile US Dollar, Gold and US Stocks
U.S. retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth. Retail sales rose 0.4% last month, lifted by spending on motor vehicles, building materials, healthcare and hobbies. Data for August was revised slightly up to show retail sales increasing 0.8% instead of 0.7% as previously reported. Economists polled by Reuters had forecast retail sales would gain 0.2% in August. Excluding automobiles, gasoline, building materials and food services, retail sales climbed 0.3% last month after increasing by a slightly downwardly revised 0.9% in July.
Possible Influence: Volatile US Dollar, Gold and US Stocks