When Donald Trump ran for president three years ago, he delighted people with his sharp rhetoric against China. As the current president is running for re-election next year, he will probably continue the sharp rhetoric against China. Although for the time being, this may not cause the same euphoria, in the same states. Last week, the trade negotiations, between the US and China faced with serious problems, which are closely monitored by the whole world. Beijing has abandoned some key agreements, after which Trump raised tariffs for $200 billion on Friday. From the beginning of the week, the market participants will monitor the developments in the trading market. After all, China has not yet responded but promised to do it.
Against the economic background, the USA dollar lost ground after the disappointing inflation data, which was published in the last Friday. On a monthly basis, the consumer indicator slowed down when the base remained the same. In the annual rate, the core inflation, according to expectations, accelerated to 2.1%. As we know, this is not a reason for the Fed to change its rhetoric. Most likely, at the next speeches, the head of the Fed Jerome Powell will continue to take a “wait-and-see” position.
There is the other side of the coin. “The US has become a bright star in the global economy, and this is where you see very strong growth and strong financial support over the past year”, says Robert Brauns, managing a portfolio of multi-strategic fixed income instruments BNP Paribas Asset in New York. At the same time, the foreign investors, instead of incurring the costly costs of hedging, they decided not to hedge their currency risks. And it worked because the dollar strengthened. The investor generates not only income from the fixed income securities, but also foreign exchange earnings.
According to the economic releases of the week, the main volatile tone will be set by Europe. The two main indicators will be released on Wednesday and Friday: GDP in the EU and the base with consumer inflation, respectively. According to the USA statistics, we should pay attention to retail sales on Wednesday and production activity on Thursday. It is extremely important not to forget to monitor the news about the USA-China trade negotiations. Any escalation or de-escalation can mix all the cards for the market participants.
GBP/USD
The British voter clearly makes it clear to understand, that is dissatisfied by the current government. According to the latest Opinion poll for the newspaper Observer, the newly elected Farage party before the European elections is leading, gaining 34%. The Labour party is in second place with 21%, and Conservatives (the party of the current Prime Minister Theresa May) in fourth place with 11%.
The soil is dry and becomes unsteady for Theresa May. Some party members put pressure, promising to leave their posts before May will retire after completing the first stage of the Brexit process. This news prompted the ministers of other contenders to declare their ambitions of the leader. So many ministers believe that now is not the time to retire the Theresa May. They argued it, that her replacement will change little in the arithmetic of Parliament, which has three times rejected her deal and did not found an alternative.
"No one should have any illusions that simply changing a person in this position will change the parliamentary reality", said the head of the trade policy of the Labour party's Barry Gardiner in an interview for the Sky News.
While politicians are fighting on their front, without giving cause for unrest to market participants, because the deadline for Brexit is delayed. It is worth paying attention to the report on the UK labor market. On Tuesday, at 11:30 (GMT) we learn about the average wage, taking into account premiums, changes in the number of applications for unemployment benefits, changes in employment and the unemployment rate. All the interesting we get in one day and at one time. Given the fact that investors have invested mainly in personnel, the UK labor market may surprise.
OIL
The participants of the oil market are quite restrained received the news of the increase of USA tariffs on Chinese goods. Tariff duties were raised from 10% to 25%, which amounted to about $200 billion. They will have a significant impact on the slowdown in China's economic growth, which has recently experienced tension. We are talking about the resumption of growth in production capacity of China, after a long decline. If it is more correct to say "when" China's industrial sector will stumble again, it will significantly hit the demand for crude oil. And, according to Reuters, China has already refused to supply oil from Iran, fearing secondary USA sanctions, which can exclude China from the global financial system. The escalation of the trade war is an extremely sensitive subject, which has a significant determining factor. The market participants will not ignore the monthly OPEC report, which will be published on Tuesday. The forecasts of global oil demand will be announced by the International Energy Agency the next day. On Wednesday evening (GMT), the USA Department of energy will publish a weekly report on commercial oil and fuel reserves in the USA. These are the main drivers of crude oil on this trading five-day period.
