Market Update: Sterling rallies as fears of 'No Deal' Brexit fade

Market Update: Sterling rallies as fears of 'No Deal' Brexit fade

16th September 2019

Last Week: Key Takeaways

UK: Brexit developments and rebounding economy boost sterling

  • Sterling strengthened to its highest level in two months against the US dollar as the prospect of the UK leaving the EU without a deal appeared to fade;
  • The Speaker of the House of Commons said he would allow MPs to do whatever is necessary to prevent a ‘no deal’ Brexit, while media reports suggested the Democratic Unionist Party (DUP) may permit regulatory checks on goods crossing the Irish sea to help the Prime Minister reach an agreement with the EU;
  • Sterling had started the week strongly as the UK economy beat expectations to grow by 0.3% in July.
  • Omnis view: The Prime Minister held his first face-to-face meeting with European Commission President Jean-Claude Juncker today, with possible solutions to the issue of the Irish border- the main obstacle to a deal- high on the agenda.

Trade: Goodwill gestures ease tensions

  • US shares rallied as US President Donald Trump postponed raising trade tariffs- taxes on companies importing products from abroad- on $250 billion of Chinese goods that were due to come into effect at the start of October;
  • China also announced it would exempt a range of US products from tariffs;
  • There was further good news for US shares at the end of the week when President Trump suggested the US would consider agreeing an interim trade deal with China to ease tensions.
  • Omnis view: The latest developments bode well for the next round of trade talks which are scheduled to take place at the end of September, although President Trump has shown in the past that he can change his mind quickly.

EU: ECB takes steps to stimulate growth

  • The European Central Bank (ECB) cut interest rates and relaunched quantitative easing- its bond buying programme which pumps money into the financial system- in an effort to revive economic growth in the region.
  • Omnis view: There was a relatively muted response from European shares as the ECB’s actions were widely anticipated, although the decision to keep the latest round of QE open-ended came as a surprise.

Commodities: Oil prices rally after attack on Saudi facilities

  • Oil prices experienced their biggest one-day jump in nearly 30 years after attacks on two of Saudi Arabia’s facilities cut the country’s production capacity by 50%.
  • Omnis view: While Saudi Arabia and the US pledged to tap into their reserves to stabilise price, any disruption to production will make oil more expensive and weigh on the global economy in the near term.

LOOKING AHEAD - TALKING POINTS

Economic data

  • Wednesday- UK inflation rate in August;
  • Friday- Japanese inflation rate in August.

Monetary policy

  • Wednesday- Federal Reserve (US central bank) interest rate decision;
  • Thursday- Bank of Japan interest rate decision; Bank of England interest rate decision.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.