News & Analysis

Week Ahead – Central Bank Minutes, Trade Headlines, Aramco and UK Politics

November 18, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Week Ahead

 Central Bank Minutes, Trade Headlines, Aramco and UK Politics 

Last week, the attention was on the likelihood of Phase 1 of the trade deal amid a few central bank meetings and market-moving economic data releases. Investors were looking for a more meaningful update on the trade front rather than conflicting trade details that emerged from Washington and Beijing.

The start of this week will be deprived of any key important economic releases. However, we expect Friday’s comments that Phase 1 is in the “final stage” will continue to pump some optimism in the markets.

Central Bank Minutes 

RBA Minutes

The RBA minutes will come in on Tuesday which will probably be the most important events of the week for the Aussie dollar amid a thin calendar.

The labour market remains the disappointment sector for the RBA. The uptick in the unemployment rate from 5.2% to 5.3% provides little hope that wages growth will gain traction any time soon. There are speculations of the RBA looking into quantitative easing.

Even though the minutes might be outdated, investors will look for clues on whether the rate cuts are working their way through the economy. A dovish minutes could further weigh on the Aussie dollar that was caught between a risk-off trading environment last week due to the lack of trade details.

FOMC Minutes 

Last week, the Fed expressed his concerns about the era of low-interest rates.

“If interest rates were to remain low for a prolonged period, the profitability of banks, insurers, and other financial intermediaries could come under stress and spur reach-for-yield behaviour, thereby increasing the vulnerability of the financial sector to subsequent shocks,” the U.S. central bank said in the report. 

The economy is recovering modestly, but the slow pace means that interest rate hikes are not on the horizon. Geopolitical risks such as trade tensions and Brexit combined with the overall slower global growth will likely see interest rates remaining low for a prolonged time.

We expect the minutes scheduled to be released on Wednesday to provide further insights on the split committee. 

Germany 

Germany narrowly avoided a technical recession last week and posted a 0.1% expansion in the third quarter. However, the economic malaise is not dodged as aside from global headwinds, the country is facing a deep turmoil in the automobile industry which is reshaping its economy.

Final figures will be released this Friday. Any unexpected downward revision will trigger fears of recession for Europe’s largest economy and will be negative for the Euro. 

Oil Market – Aramco

On Sunday, we note that Saudi Arabia set a valuation target of $1.6 trillion to $1.7 trillion for Aramco’s Initial Public Offering (IPO). With a $111.1 billion in profit, the Company has established itself as the world’s most profitable company.

Even though the valuation was well below the Crown Price’s goal of $2 trillion-dollar, oil prices opened on a positive note on Monday on trade optimism. We expect Saudi oil giant, Aramco’s IPO to remain one of the key drivers of oil prices until the 4th of December alongside trade updates and oil supply reports.

UK Election – Manifesto Watch

The election is well underway and even if this election is mostly geared on Brexit, attention will also be on the release of the policy platform of each party. Investors will require clarity on the policies to see how the UK economy will adjust to Brexit.

The Pound has shrugged off recent disappointing economic data as polls are showing a lead by the Conservative Party. However, if incoming economic data keep showing signs of deterioration, we might see growing calls for a rate cut.

At the moment, we expect the election campaign to be the main driver of the Pound. However, gains will remain cap until there is more clarity on the election outcome.

Tuesday, 19 November 2019
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