News & Analysis

Weekly Summary – A Week of Geopolitics

February 15, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

The week was primarily dominated by trade talks, Brexit, the news on the declaration of the national emergency in the US amid a slew of economic data releases and the earnings season.

 Geopolitics at the forefront

The geopolitical headlines largely drove risk sentiment in the financial markets. Confidence was slowly restored across the first half of the week while as of writing, the second part is shaping up to be less buoyed as investors await more concrete details.

  • US Government Shutdown

The news that the politicians have agreed on border funding to avert a second shutdown boosted optimism. However, President Donald Trump’s declaration of a national emergency emerged on Thursday and dented sentiment. 

  • US-China Trade Talks 

It was a muted Monday as the markets were trying to gauge if the trade negotiations will be productive after last week’s news that both Presidents may not meet before the deadline. However, during the week President Trump reassured the markets that the deadline might be extended if significant progress is made. Investors turned cautious on Thursday amid a lack of concrete details on the trade talks.

  • Brexit

Brexit news was mixed and conflicting across the week. Theresa May is in a race against time to secure a Brexit deal. The clock is ticking, and the Prime Minister is taking blow after blow. The Valentine Day’s Vote Results on the revised agreement Theresa May wish to bring back from Brussels showed that she is struggling to find a way to get Parliament to agree. It also highlights that the European Union may be more resilient to renegotiate as there are deep party divisions and a lack of majority solidly supporting the Prime Minister.

Major equity indices changed from green to red on Thursday. Positive headlines on the geopolitical front bolstered confidence, but optimism started to wane following lack of concrete evidence of resolutions ahead of the looming deadlines – Trade, Brexit and the US government shutdown.

Also, earnings season are also testing the markets. Rather than fourth-quarter earnings, there is a lack of uncertainties regarding estimates forecasts. Managers are struggling to provide accurate expectations giving the current headwinds and investors are finding difficulties to interpret the 2019 expectations. Corporate executives may be revising down profits more than needed to be on the vigilant side.

The Reserve Bank of New Zealand (“RBNZ”)

The RBNZ emerged as the less-dovish one among other major central banks. It did not follow the dovish chorus and was more confident in its economy. Governor Orr did not eliminate the possibility of rate cut nor did he raise the odds for a rate cut. It was a relatively neutral speech which means that the next move “could be either a hike or a cut”.

The New Zealand Dollar got a much-needed boost to the upside. We saw movement above 100 pips on specific NZD pairs after the statement. The CPI figures were upbeat, but there are some concerns on the labour and housing market which prompted markets to assume that the RBNZ would strike a dovish statement.

As of writing, we note that the NZDUSD pair edged higher after the statement and maintained the 0.68 level on upbeat Chinese trade figures. However, the upcoming Chinese inflation data could challenge this level.

Economic Data

  • Gross Domestic Product

We had recent GDP figures for the UK, Germany and the Eurozone data. The official statistics for the UK showed that the economy had experienced its worst year since 2012. While the German’s economy failed to expand at all in the fourth quarter with a 0.0% rate, the Eurozone grew by only 0.2%. Political issues are at the frontline of the weakness in those economies. 

  • Inflation figures 

The UK CPI disappointed in January and came at 1.8% instead of 1.9% as predicted while the US CPI was solid which provided bullish support to the US dollar. However, Retail Sales was a huge miss which caused the greenback to retreat slightly to the downside. The US dollar index dropped from the 97 handle.

Monday, 18 Feb 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.831 0 0 0 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0

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