Weekly Market Update

Author : Rachel Poole
Date : November 9, 2019

Market Action

The announcement that the United States and China have made progress towards phase one of a trade agreement brought a wave of confidence to the markets. Global equities rallied and the US 10-year Treasury note jumped 22 basis points to 1.93% this week. However, the price of a barrel of West Texas Intermediate crude oil and Volatility remained relatively unchanged.

On the US trade front, there are signs that the US Department of Commerce may not impose tariffs on European automobiles next week. The decision as to whether or not European auto imports pose a threat to US national security is due by November 14th.

The Chinese yuan has strengthened this week as a result of trade deal optimism, returning to above 7 per US dollar after falling to 7.18 earlier this year. There is also speculation that, as part of a trade agreement, the US will remove its designation of China as a currency manipulator in exchange for China keeping currency weakness in check.

Signs that the global economy may avoid a recession is boosting risk assets and hampering safe havens. This week major US equity indices reached record levels and developed market government bond yields rose, as did the US Treasury yield curve. In Europe, signs of stabilization were evident in manufacturing and in services as the manufacturing PMI rose to 45.9 from 45.7 and the services sector rose to 52.2 from 51.6. In addition, Germany factory orders increased for the first time in three months and the eurozone September retails sales rose 3.1% year over year. However, safe havens such as gold and the Japanese yen fell.

The Bank of England decided not to make any changes to monetary policy this week, but a couple of members of the Monetary Policy Committee voted for a 25-basis point cut in the bank’s base lending rate. Growth has slowed in the country due to negative business investment, moderating consumer spending, and the perpetual uncertainty over Brexit. The Bank is relying on the expectation that investment will turn positive in 2020 once a Brexit decision is finalized.

Updated market return figures

What Could Affect the Markets in the Days Ahead

Progress towards phase one of a trade agreement between the US and China will most likely include the rollback of tariffs on both sides. Though details have yet to be finalized, there is hope that a deal could be signed by US President Donald Trump and Chinese President Xi Jinping at the NATO summit taking place in London on December 3rd and 4th.

Spain will attempt to break the electoral deadlock on Sunday as voters head to the polls for the second time since April and the fourth time in four years. It has become quite difficult throughout Europe for traditional center-left and center-right parties to form governing coalitions. Sunday may result in another inconclusive outcome but the market implications of the election are expected to be modest due to a lack of anti-European Union sentiment in Spain.

Turkish President Tayyip Erdogan will be meeting with US President Donald Trump this coming week. The two presidents will be discussing Turkish and US forces in northern Syria, bilateral agreements, sanctions, Ankara’s purchase of Russian missile systems which could trigger more sanctions, and more. Turkey’s currency, the lira, is on track for an 8 percent fall in 2019, the seventh year in a row it will be in the red.

Brazil, Russia, India, China, and South Africa will be meeting on Tuesday in Brasilia for the 11th BRICS summit. The summit will be focused on “economic growth for an innovative future” as each of the BRICS countries is facing economic problems at home. China is stuck in a trade war, India’s credit rating has been cut, Russia’s economy is semi-stagnant, Brazil is emerging from a brutal recession, and South Africa is losing its investment-grade credit rating.