Trade talks continue to dominate global sentiment
Developments in US-China trade talks have continued to dominate overall market sentiment.
US officials were generally optimistic over trade talks with comments that a deal was very close, There were, however, no definitive moves to sign a deal and there were reports of last-minute snags over the issue of China’s buying of US agricultural exports.
There was slightly greater optimism from US officials late in the week which curbed demand for defensive assets.
Headline October CPI inflation increased to 1.8% from 1.7% while the core rate declined marginally to 2.3% from 2.4%.
Retail sales data was mixed with a slight monthly gain while industrial production declined sharply.
Federal Reserve Char Powell stated that interest rates were likely to remain at current levels if the economy performed in line with expectations while the Fed will be ready to act if there is a material change to the outlook.
Comments from regional Fed Presidents also indicated little enthusiasm for cutting interest rates again in the short term and future markets ruled out the potential for any cut at the December meeting.
Expectations of no further rate cuts provided an element of dollar support.
Labour-market data was mixed with a small decline in unemployment offset by a dip in employment and slowdown in wages growth. Third-quarter GDP growth met market expectations at 0.3% with the UK avoiding a technical recession.
Headline CPI inflation and retail sales releases were marginally below expectations, although the overall data impact was limited.
The Brexit Party announced that it would not field candidates in over 300 parliamentary seats held by the Conservatives. There were further concessions late in the week and withdrawals from marginal seats. This move increased market expectations of a majority Conservative government at the December 12th election and passage of the current Brexit deal while opinion polls registered a wider Conservative lead.
In this environment, Sterling posted net gains with a 6-month high against the Euro and limited advance against the dollar to around 1.2900.
German investor confidence improved sharply for November on hopes for a more favourable global growth outlook.
Germany also avoided a technical recession with GDP increasing a slight 0.1% for the third quarter.
This combination provided an element of Euro support, although ranges were subdued.
The Reserve Bank of New Zealand held interest rates at 1.00% at the latest policy meeting, contrary to consensus forecasts of a further cut to 0.75%. Governor Orr was also slightly more positive over the outlook and the decision triggered sharp gains for the New Zealand dollar.
The Australian dollar was undermined by weaker than expected labour-market data as employment declined and unemployment edged higher to 5.3% from 5.2%.