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A tale of Brexit and the banks once more

Brexit and the BOE

Dominating as sterling’s main driver will be Brexit once more. It’s still a packed week though, with inflation data results due out Wednesday and retail sales Thursday. The Bank of England (BOE) interest rate decision also on Thursday could prove crucial for the pound, with most expecting the BOE to keep rates on hold. 

UK Prime Minister Johnson travels to Luxembourg today to begin his first talks with Jean-Claude Juncker, the European Commission President. Reports suggest the PM is not prepared to move from the exit date of October 31, with Foreign Secretary Dominic Raab stating that Johnson would reiterate that they want a deal. On Sunday Juncker spoke on German radio about his doubts of an alternative to the Irish backstop.

The Eurozone economic calendar has a quiet start to the week, with most eyes on the meeting with Juncker and Johnson. ZEW sentiment figures out Tuesday could be a strong indicator of how investors are feeling about the broader economy, with both the German and European-wide results taken into account when looking at the health of the market. 

Safe-havens and Saudi’s oil  

Oil prices have surged by nearly 20% after attacks on Saudi Arabia’s production facilities, resulting in 5% of the world’s supply being halted. Prices of Brent crude since rocketed, jumping up to $71.95 a barrel at one point. Safe haven Japanese Yen and countries which rely heavily on oil production, such as Canada and Norway, have seen their currencies rise in response. 

Depending on how quickly production can recover, the US Dollar and Swiss Franc are potential currencies to rise too amid a risk-adverse atmosphere. However, investors are concerned about fallout from the attacks after growing tension in the region following other attacks earlier in the year. US President Trump tweeted that the US knew who was responsible. 

Rate cuts and retail figures 

US yields have dropped after positive movements last week, and with only US Empire State Manufacturing Index data in the news today, all eyes are already on the Federal Reserve rate decision mid-week. Looking set to follow the European Central Bank (ECB) and cut rates, Fed Chairman Powell has stated that while, “economic headwinds are intensifying”, he doesn’t believe that a US recession is likely.

The Fed could lead the S&P 500 and Dow to all-time highs, with last week’s performance still in the limelight. Concessions in the trade war between the US and China have raised many hopes of more negotiations in the coming weeks. 

Chinese data has already kicked off the week, with retail sales up 7.5% year-on-year, with sales in urban areas increasing the most. However, the sales figures fell short of expectations, meaning that it could be more likely that the People’s Bank of China will cut its medium term lending rate tomorrow.

GBP: Brexit talks begin with Juncker and Johnson

GBP: Brexit talks begin with Juncker and Johnson

EUR: ZEW sentiment tomorrow

EUR: ZEW sentiment tomorrow

USD: Eyes already on the Fed rates

USD: Eyes already on the Fed rates

JPY: Strengthening in risk-adverse times

JPY: Strengthening in risk-adverse times

CNY: Low retail sales figures

CNY: Low retail sales figures

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