The final month of a slightly more volatile year – equity markets have certainly snapped out of there abnormally low volatile trading this year, while currencies have varied depending on your risk flavor and geopolitical viewings.
With 23 days until Santa arrives and 29 days before the year’s end trading is far from done when you consider that Brexit needs to be voted on in the Commons; there is a Federal Reserve meeting likely to see a further 25 basis point rise; the ECB, BoJ, BoC, BoE, RBNZ and the RBA all meet for the final time this year before taking an 8 week break (a lot can happen in 8 weeks) and then there is all the Q3 data that drops; namely GDP and inflation.
1. EM gets the tick: The start of the week is going to be interesting for EM and quasi-EM currencies off the back of the news coming from the G20 in Buenos Aires. The Trump-Xi meeting saw an in-principle agreement where the President has agreed not implement any further tariffs on China exports post-January 1 and looks like keep the tariff rate at 10% rather than jumping it up to 25% as threatened when the additional US$200 billion of tariffs where enacted. For the likes of the AUD and NZD particularly against the EUR, the open is going to be interesting and likely to the upside.
2. Brexit check-up: The consensus that the Commons is going to reject Withdrawal Agreement on its first attempt is growing by the day. GBPUSD eased off as last week progressed and this was despite the fact the Bank of England took the extraordinary step of releasing a paper predicting the UK would experience a recession the likes of which have not seen since the WWI. One would have expected this would jolt MPs to vote for the agreement, the market, however, was clearly unconvinced this will sway enough vote. I am now reversing my aggregate long call on GBP until 2019 and see knee-jerk trading all the way through to the first vote. If as expected the agreement is rejected, we look to January 21st a special sitting which was designed as a circuit-breaker on the prospect of a no-deal event.
3. Aussie data: the AUD has rejected 73.4c level 3 times in the past week and barring a possible pop from the Trump-Xi talks, I see it hitting that ceiling once again this week as Wednesday’s GDP is likely to be softer quarter-on-quarter.
Q3 GDP forecasted to expand at 0.5%, year-on-year 2.9%, I see this as a touch pessimistic its more likely to be over 3%. However, that is lower than Q2 and the fact last week’s CAPEX and construction numbers saw slowdowns in Q3, an area that had strongly supported GDP in the previous two quarters, I cannot see a catalyst here and it is likely any headline beat will be quickly drowned out by the granular details.