Key Points From This Week

UK Elections

The Conservative party stormed the vote with a 364 seat result in parliament, taking them well above the 326 seats required for a majority. Market attention now shifts back to Brexit with Johnson planning to take the UK out of the EU by January 31st 2020 under his deal. With a majority in parliament, Johnson should succeed in passing his deal which will pave the way for the UK and EU to begin trade deal negotiations.

FOMC

The Federal Reserve saw out its last FOMC meeting of the year without any further easing. The statement contained relatively few changes, though some of the outlook and assessment phrases were a little more positive. The impact on the Dollar was ultimately negative however as Powell reassured investors that the Fed would continue to monitor the performance of the economy along with noting that the Fed will continue buying USTs well into next year.

Lagarde’s First ECB Meeting

Christina Lagarde delivered her first monetary policy statement as ECB president this week. The ECB kept policy levels unchanged, as expected, though the statement was a little less-dovish than many were expecting. Lagarde noted that while risks to the Eurozone remained tilted to the downside, these risks are now less pronounced and there have been some stabilisation in the slowdown in growth.

US-Sino Trade Deal

Despite uncertainty over the week, markets were lifted late on Thursday and the US and China signed off on the phase-one trade deal agreed in October. The two sides had been locked in talks all week ahead of the next round of US tariffs which were due to go live on December 15th. With a deal in place these tariffs will now be cancelled and as part of the deal, the US will also cancel 50% of existing tariffs on around $375 billion of Chinese goods. News of the deal has been met with widespread relief, lifting risk assets firmly.

Key Events Next Week

Global PMIs

Next week, investors will receive a range of PMI readings from the Eurozone, UK and Canada. As we move through Q4, these readings will be a key insight into the health of global growth over the final quarter of the year and will likely be key for determining the path of risk assets next week.

BOJ Meeting

With many central banks having refrained from easing over the final meetings of the year, the BOJ is not expected to ease further. However, traders will be tracking the meeting for clues as to whether the BOJ is likely to adjust policy in the early part of next year.

Australian Employment Data

Australian employment data next week will be key for the AUD. The RBA has long praised the strength of labour conditions as the backbone of its resilient outlook. A solid reading here should keep expectations anchored, supporting AUD while weakness will likely see increased RBA easing expectations.

Keep An Eye On

BOE Meeting

In its first meeting following the UK elections, the market will be hotly anticipating the bank’s latest assessment. Despite much greater clarity on Brexit, the BOE is still likely to reiterate its message of remaining on hold until a Brexit decision is delivered. With inflation having softened over recent months, the need for a rate hike is not where it was and the bank will likely want to wat to assess conditions in the New Year following Brexit before making any further policy adjustments.

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