News & Analysis

Week Ahead – Focus Remains on Geopolitical Risks

September 23, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Week Summary

It was a jam-packed week with plenty of geopolitical events and central bank decisions. Markets experienced quite a dramatic end to the week with tough words from President Trump and the cancellation of Chinese officials to two farms states. 

Week Ahead

Friday’s sell-off will likely persist on Monday amid renewed trade concerns between the US and China. Also, the developments over the weekend on the geopolitical front will probably keep a lid on global risk appetite at the start of the week.

Geopolitics Remain at the Fore

Brexit and US-China trade tensions will come back to the fore this week, while investors will also monitor the situation in the Middle East and Hong Kong.

US-China

We saw some gestures of goodwill coming from both sides in the last few weeks which have raised expectations of further trade negotiations and compromises. However, the sudden departure of the Chinese delegations forced investors to pause and wait for more updates leading up to the important meeting early next month.

US-Japan

As trade talks with China have stalled, President Trump rushes to finalise trade deals with other countries in his attempt to reshape the country’s international trade landscape. The US announced plans to enter into an initial trade agreement with Japan last week and investors will likely track any progress as an agreement could be announced anytime in the coming days or weeks.

Middle East

The tensions in the Middle East continue to boil. After President Trump threatened military actions against Iran, the US had adopted a more cautious approach and was seeking a “peaceful” resolution over the Saudi attack. However, Washington is still sending a small detachment to watch the region. Despite the US troop being deployed is moderate, Iran described the move as invasive and aggressive.

The Saudis are repeatedly blaming Iran despite the Houthis claiming responsibility of the drone strikes. Even though the probability of a war is low as there are efforts to defuse the tensions, it remains a high-impact risk that investors cannot ignore.

Markets will likely keep track of the “peace initiative” Iran will present at the United Nations General Assembly on Tuesday.

 Brexit

The ruling on whether the decision to prorogue Parliament was unlawful is due early this week. According to the legal experts, the Supreme Court is poised to rule that Boris Johnson has misled the Queen. As the clock continues to tick down to 31st of October, the ruling will be the main event for Brexit this week.

The recent surge in the Pound on the back of positive comments on the Northern Ireland backstop coming from the EU could be challenged by the ruling.

Central Bank Decisions 

Another round of central bank decisions and speeches this week. The Reserve Bank of New Zealand (RBNZ) will stand out as it continues to be the central banker that is leading the interest rate cuts among the major economies.

After a surprise 50 basis point rate cut, the RBNZ is expected to keep the interest rate on hold at 1% on Wednesday unless the central banker decided to surprise the markets again. The August trade data will be published before the interest rate decision.

Wednesday will be key for the kiwi dollar.

Economic Data 

The focus will stay on the US economic data. The recent move by the Fed was widely viewed as another “insurance” rate cut because of external headwinds to the economy rather than domestic weakness.  Hence, this week figures will help the markets to monitor the trends. 

Monday: Chicago Fed National Activity Index, Manufacturing, Services and Composite PMI, and Fed’s Williams speech

Tuesday: S&P/Case Shiller Home Price Indices, Housing Price Index and Consumer Confidence

Wednesday: New Home Sales

Thursday: Jobless Claims, Gross Domestic Product, Core PCE and Pending Home Sales

Friday: Personal Spending & Income, Core PCE, Durable goods, Non-defense Capital goods Orders and Michigan Consumer Sentiment Index

The ECB has recently slashed interest rates and has resumed its asset purchase program recently to shore its ailing economy. The PMI figures in Germany and the Eurozone area, German IFO surveys and ECB speeches will help to get a sense of whether the Eurozone continues to lose momentum.

Tuesday, 24 September 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.227 0 0.245 0.06 0.054 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 3.03 0 0

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