Weekly Market Update 2019 10 14

14/10/2019

US-China Trade War Truce? 

The Chinese attempted to de-escalate the trade war with the US last week by offering to increase purchases of agricultural goods. The offer was made to stave off a fresh round of tariffs which were due to come into force on 15th October. Negotiators from both sides are expected to open discussions ahead of a potential meeting between the nations’ leaders in November, at the Asia Pacific Economic Conference. The offer to buy an additional 10m tonnes of soybeans worth approximately $3.25bn appears of little value relative to the size of the bilateral deficit. However, offers for a raft of non-tariff barrier reforms will be of much more interest to the Americans although they will want these to extend beyond agriculture, with a particular focus on liberalising the financial sector. While some short-term relief may be found from these discussions, few are expecting that the end of this dispute is in sight as many issues remain outstanding.

Potential Brexit Breakthrough

While few had hope that consensus would be found, the rejection of Boris’ new deal by German Chancellor Angela Merkel impacted Sterling. However, this was sharply reversed on Friday following a discussion between the UK and Irish Prime Ministers, suggesting that a deal was still possible. Such was the optimism from this meeting that the sterling rallied nearly 2% against the dollar, the FTSE 250 rose over 4%, and many UK domestically focused stocks saw their share prices increase by 10% or more. Even though the 31st October deadline is drawing closer, there is little more clarity on what the actual outcome will be. This uncertainty now appears to have had an increasing impact on UK consumers and companies, with recent retail sales data indicating that the fall in spending in September fell 1.3% month on month, making it the worst September reading since the first figures were recorded in 1995.

Turkey Invades Syria

Donald Trump once again blindsided his advisers, giving the green light for Turkey to enter Kurdish dominated territory in Syria. Turkey views the Kurds as terrorists as a result of a long-running struggle from those Kurds within Turkey and is uncomfortable with such a well-armed group on its border. The US had allied themselves with the Kurds as a way to defeat ISIS, arming them and providing air support. So controversially, the ease at which Trump was willing to sell them out has concerned other allies as well as US military leaders, who are worried that the US will struggle to build such relationships with local forces in the future. The current situation once again highlights the complexities of the region, which makes it unlikely that the situation will be resolved in the near future. While Turkey will be pleased with being able to proceed, there is a heightened risk of economic sanctions if they do anything perceived as untoward by the US.

Market Data

  % 1w* % 1m*
UK 1.41% -0.99%
US -2.44% -3.56%
Europe ex UK -0.12% -2.2%
Japan -3.22% -2.13%
Emerging Markets -1.59% -3.00%
Oil 0.67% -1.40%
Gold -4.59% -3.47%

(*GBP Returns)

Prydis

This article was written by Prydis

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