Domestic politics and international geo-politics were once again the main market driver today, with little or no tier-1 macro data release of note, and US-centric news is still hogging the headlines. The Dollar had been on the back foot yesterday after US President Trump criticised the Federal Reserve’s rate hikes and the Dollar today gave up more ground. Markets were twice blind-sided in a short space of time by news that Trump’s former lawyer, Michael Cohen, had admitted in court that President Trump had directed him to break campaign finance laws and that a jury had found President Trump’s former campaign chairman, Paul Manafort, guilty of eight counts of tax and bank fraud. While talk of impeachment may be premature, President Trump is arguably looking increasingly vulnerable.
This was an unwelcome distraction from the meeting in Washington between a US and Chinese trade delegation which is hoping to find a solution to the current trade impasse between the two countries before 25% reciprocal tariffs on $32bn worth of US and Chinese imports kick in tomorrow. President Trump is seemingly not hopeful that the deadlock will be broken but the Chinese central bank may be holding out an olive branch, having kept the Renminbi broadly stable in trade-weighted terms in the past fortnight.
The Dollar has now weakened for sixth consecutive sessions and the Euro, Sterling, Australian and Kiwi Dollars have all benefitted. EUR/USD is up 2.3% in the past week and trading above 1.16 for the first time since 8th August.
Even Sterling is up by a decent 1.8% versus the Dollar since 15th August. While markets don’t think that the Bank of England will hike rates until 2019, they appear to have taken some comfort from the resumption of Brexit negotiations between the UK and EU, with Brexit Secretary Dominic Raab and EU chief-negotiator Barnier agreeing to a brisker pace of talks. Nevertheless, UK and European Parliament votes which had been pencilled in for October could be pushed back to November, with the EU acknowledging that the recent lack of progress in negotiations may delay a final decision and vote on a Brexit deal. The clock is ticking for both sides to reach a possible agreement on a Brexit deal and avoid a “no-deal” cliff-edge scenario and the next two months will be crucial.
Markets, should in coming weeks get a better sense of what a “no-deal” scenario would imply for the UK as Theresa May’s government has committed to publishing more than 80 “technical notices” giving advice to businesses and individuals in the event that the UK leaves the EU without a deal next year. About a quarter of these notices will be released tomorrow on topics expected to include farming, pharmaceuticals and financial services, which may cause some jitters in UK financial markets. The Department for Exiting the EU has not specified when the next batch of notices would be released but officials suggested that publication of the more contentions notices would be held back.
