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All quiet in Asia - but not for long...

Published: Monday 24 September 2018

  • US Federal announcements in focus
  • Theresa May under increasing Brexit pressure – Pound holding up
  • German business confidence dips
​​By Jonathan Russel

Asian markets opened quietly today, with public holidays in Japan and China. The tone of the markets is currently mixed, as a new round of US-China tariffs takes effect today. At the time of writing, the US Dollar, Sterling and Japanese Yen are looking stronger. Commodity currencies, such as the Australian, New Zealand and Canadian Dollars, are the weaker ones, led by the Aussie Dollar, which is struggling again.

US Federal announcements in focus

The major focus this week is whether the US Federal Open Market Committee (FOMC) will announce anything that would help the US Dollar sustain a rebound after last week’s dramatic Dollar sell off.

Theresa May under increasing Brexit pressure – Pound holding up

Theresa May will meet senior ministers later today, as she comes under growing pressure to change her Brexit policy. The UK Prime Minister has insisted she will stick by her Chequers plan for close future co-operation with the EU, despite European leaders attacking it last week. Many Tories want her to ditch it in favour of a Canada-style trade accord. UK Foreign Secretary, Jeremy Hunt, has declined to rule this option out, while his predecessor, Boris Johnson, said it offered a "real alternative".

The UK is due to leave the EU on 29th March 2019 and the two sides are seeking to negotiate the terms of exit, as well as an outline agreement on future co-operation, over the next month or so. But the talks hit the rocks on Thursday when EU leaders dismissed the basis of the Prime Minister's plan, which included a free trade zone and common rule book for goods with greater divergence for services, as "unworkable". The Pound is hanging on, however, despite ongoing Brexit deal uncertainty…

German business confidence dips

Business sentiment in Germany has taken a tumble in September, in sharp contrast to August’s leap upwards, according to the latest German Ifo Business Climate Index, which fell to 103.7, but still beat expectations of 103.2. The German economy is still in good health, so it hasn’t proved too much trouble for the Euro.

China-US trade talks cancelled on lack of US sincerity

Hong Kong’s South China Morning Post reported that it has been confirmed by an unnamed source that China cancelled the planned trade talk visit by Vice-Premier Liu He to the US. This was on the grounds that, as the Foreign Ministry said on Friday, “everything the US does hasn’t given any impression of sincerity and goodwill”.

In typical combative Trump style, the US President said in a rally in Missouri last Friday that, “…we have far more bullets… We’re going to go US $200 billion and 25 percent Chinese made goods. And we will come back with more… If they retaliate, we have a lot more to come back with. And they want to make a deal, and let’s see if we can make a deal.”

North American Free Trade Agreement talks to continue informally

The North American Free Trade Agreement (NAFTA) talks will continue this week, but only in an informal way. Both Canadian Foreign Minister, Chrystia Freeland, and US Trade Representative, Robert Lighthizer, will be in the United Nations General Assembly in New York on Monday and Tuesday. Canadian Prime Minister, Justin Trudeau, said, “…certainly the fact that many of our negotiators, many of our teams, will be in New York at the same time (means) it’s very likely that conversations continue in a constructive but less formal way.” There is no other formal arrangement known at this time.

At the same time, Trudeau didn’t sound like he would be obliged to find agreement by the US-imposed deadline of 1st October. He reiterated that he would not sign a bad NAFTA deal. And the Canadian negotiation team won’t be rushed. On the other hand, White House economic adviser, Kevin Hassett, said on Friday that the US is getting “very, very close” to moving forward on a trade deal with Mexico – without Canada. Mexican president-elect, Andres Manuel Lopez Obrador, said on Friday that “…in the event that the governments of the United States and Canada do not come to an agreement… …we would have to maintain the bilateral deal with the United States and seek a similar deal with Canada.”

The week ahead…

Focus on Federal Open Market Committee rate hike and new projections

The Focus on Federal Open Market Committee (FOMC) rate decision is the major focus of the week ahead. There is no doubt in markets’ minds that the Fed will raise the Federal Funds rate to 2.00-2.25%.

The Reserve Bank of New Zealand (RBNZ) has another key central bank meeting taking place this week. It’s expected to take a neutral stance on monetary policy, so the next move could either be a rate hike or a cut. Markets watch and wait with interest…
Steak bar

A man walks into a bar and orders a drink. Then he notices there are pieces of meat nailed to the ceiling of the bar so he asks the barman what they are for.

The barman replies, "If you can jump up and pull one of them down you get free beer all night. If you fail, you have to pay the bar £100. Do you want to have a go?"

The man thinks about it for a minute before saying, "Nah, the steaks are too high!"

Today's Major Economic Releases

Market BST Data/Event Previous Expected
JPY All Day Japan: Bank Holiday    
GBP 11:00 UK: Confederation of British Industry Industrial Orders Expectations 7 5
CAD 13:30 Canada: Wholesale Sales -0.8% 0.4%

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