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UK and EU agree on Brexit Deal, Oil Prices Continue to Fall

Published November 26, 2018

Author: Nicholas Cork

The biggest news for markets is that EU leaders have agreed on UK’s Brexit deal at a Brussels summit over the weekend.   The 27 EU leaders took less than an hour of discussion to give the deal their blessing and said the deal paved the way for an “orderly withdrawal”.  While this is a major breakthrough, PM May still has the task of getting the deal through a divided UK parliament, so no positive reaction for the British Pound just yet.  The EURO also remains under pressure as reports over the weekend showed weaker than expected Eurozone PMI data.

The AUDUSD finished the week with a whimper as it starts to ease back towards 0.7200 after the USD finished the week at 10 day highs. No doubt the USD is now being seen as a safe haven as other markets continue to capitulate  – Oil fell another 6%, crypto currencies appear to be under enormous pressure and the DOW is down 10% from October. Domestic politics will also not help the AUD when the world looks.

The week ahead sees more in the way of Tier 1 global data –

How Many Fed Hikes Next Year?

A big week of data ahead for the USD with the latest Consumer Confidence Index result on Wednesday morning, followed by Q3 GDP early Thursday morning (AU time).  Markets will be looking at the health of the US economy after some recent data releases had pointed towards a possible slowdown with import tariffs potentially starting to have an impact on growth.  Friday morning we have the FOMC meeting minutes for November where the language used will be closely monitored by markets looking for clues on the timing of future interest rate hikes into next year.  Recent comments from US Fed officials have suggested that the US may face headwinds next year with signs of a slowdown in global growth while fiscal stimulus effects fade.  While this will unlikely impact the expected December rate hike, questions are now being raised over the 3-4 hikes expected during 2019.

Trade Negotiations to Continue at G20 Meeting

U.S – China trade tensions continue to weigh on global market sentiment with things heating up once gain after last weeks APEC meeting.  Attention now turns to this weeks G20 gathering in Buenos Aries and the meeting between President Trump and Premier Xi Jinping.  Positive progress on Chinese/US trade negotiations would be positive for risk sentiment and could provide a boost for the NZ Dollar, while more uncertainty would have the opposite effect.

Sterling to Remain Under Pressure Despite Brexit Progress

The British Pound will likely remain under pressure as the market waits to see if PM Theresa May can successfully sell the recently agreed Brexit deal to her parliament.  Mrs May is expected to call a parliamentary vote before Christmas and if she gains the necessary support Britain would be on course to leave the bloc on March 29, with a transition period until December 2020.  A no-vote would bring into question May’s leadership and would trigger a 21-day deadline at the end of which the government would have to outline how they intend to proceed.

Euro QE Program Nearing Completion

There will be increased focus on ECB President Draghi’s appearance in front of the European parliament tonight given the recent slow-down in European growth.  The ECB’s QE programme is set to finish up next month, but it is possible the ECB could sound more cautious about the potential for rate rises later next year, at its meeting next month.