Daily Roundup – Markets review
Economic data is relatively light on the agenda for the day ahead which will leave political developments very much in focus. However we have already seen a shock print from the Eurozone this morning with German Industrial Production for November coming in well short of expectations, posting a 1.9% decline against a forecast 0.3% uptick. This serves to knock yesterday’s better than expected retail sales readings, adding weight to the idea they only impressed as a result of falling fuel prices. With WTI crude hunting out that $50/barrel level once again, unless there’s a meaningful reversion here then the headwinds for the Eurozone could well continue to mount.
Sticking with the Euro, the currency saw some meaningful selling ahead of the Asian session. Whilst the move was nowhere near as marked as last week’s JPY rally, an apparent imbalance showed up the risk of heightened volatility in the thinly traded window between US markets closing and Asian counterparts coming fully on stream. This could be critical for next week’s Brexit vote, due on January 15th, as there’s a real chance that the result here won’t be declared until very late in the day. Those seeking to trade volatility may do well to mark this in their diaries now.
Further Brexit developments could be seen later today as politicians become increasingly against the idea of the UK leaving the EU with no deal in place. There’s a bid to push through amendments to a finance bill during today’s session which could in turn make it very difficult for the government to operate in the event of a no-deal Brexit. There’s some contention as to whether such posturing is responsible, but it also illustrates the disillusionment with Theresa May’s leadership of the country. Progress for rebel politicians here may be sufficient to prop up the Pound, although maybe only temporarily if attention then turns to the idea that we may see a general election being called.
Trade talks between Beijing and Washington are ongoing, with the key outcome here likely to be a relief rally for risk assets. The exact detail is arguably irrelevant, so long as the two sides can avert the 1st March deadline which would see US import tariffs hiked again. There are already reports circulating that Chinese consumers are actively boycotting US goods – a move that isn’t being reciprocated – so again this pushes the US negotiating team further onto the back foot. Any deal has the potential to see dollar weakness across the board, something which is already being teed up by those increasingly dovish messages we’re seeing about likely Fed monetary policy in the New Year.
AUDNZD is finding buying support right now and is close to taking the 23.6% retracement level of the August-January sell off at 1.0585. A successful break through this opens the way for a move out to the 38.2% level around 1.0685.