Last week was incredibly news-light (hence the lack of reports) but the weekend has given us plenty to talk about…
We should start with The Donald, who has made history by becoming the first US president to set foot in North Korea. He made a surprise trip to meet with Kim Jong Un and South Korean president Moon Jae-in. There were no solid outcomes, but the plan is to get teams talking to try and break the stalemate on previous denuclearisation negotiations.
Trump has also made some concessions this weekend over Huawei, saying that American firms could continue to supply components to them – though not the other way round! There’s still a lot to do to get a deal, with the Chinese saying that getting 90% of the way to a deal has been tough enough and the last 10% seems insurmountable, as the differences between them in these areas are fairly fundamental and changes to them are unlikely to get universal backing from the negotiating teams.
The slight thaw in progress comes as the Bank for International Settlements has urged politicians to “ignite all engines” to get through the current lull in global output. They’re talking about making significant structural reforms rather than low interest rates to try and boost growth. They argue that loose monetary policy promotes asset bubbles and dents banks profitability, making it harder for banks when bubbles do burst.
The BIS have also warned central banks to try and avoid playing their easy money cards until they really need to. This is aimed at the Fed and ECB who are both considering getting back on the easing train to stimulate economies, but in doing so will leave themselves with very little room for manoeuvre in the event of future downturns.
Back to Trump: His relationships with the Saudi’s are paying dividends – the kingdom has doubled it’s holdings of US Treasuries in the last couple of years. Bloomberg has the story highlighting what the ulterior motives might be.
Meanwhile, in Europe… Deutsche bank is planning to make from 15-20,000 redundancies when they announce restructuring plans, according to reports from the weekend. The plans could be announced this week and will need to be significant if they’re to change the direction of the bank. Deutsche failed to get the merger with Commerzbank across the line and their share price hit all-time lows last month. change is sorely needed, but the job cuts could equal one in every six employees being made redundant.
Major EU members have hit a stumbling bloc in their plans to install a Dutch socialist in the soon to be vacant spot of EU president. Jean Claude Juncker’s replacement was meant to be Frans Timmermans, but the Eastern bloc put up stronger than expected resistance to the change and the decision has had to be postponed. AsReuters points out; this is the third time a summit to agree on the new leadership has concluded without results, as the polarising politics amongst members means ideas are less aligned than they have been for some time.
The UK’s leadership contest is still ongoing with the two candidates setting out their stalls to woo the Hard Brexiteers. Jeremy Hunt has said he’ll set aside a war chest to fund fishing and farming in the event of a no-deal, whilst Boris Johnson has refused to rule out suspending parliament to get us out without a deal. We’re still of the opinion that this is them playing to their audience rather than their actual intention, but we’ve got another few weeks of this and the market isn’t going to take kindly.
Some ‘good news’ from the UK: We’ve found some extra money which means the economy is 1% larger than we actually thought it was. The statistics review showed that growth between 1997 and 2016 was about 0.1% higher than previously calculated which led to a gain of around £26bn. The review wasn’t all good news though – it found we’re still in a sharp Brexit fuelled slowdown and that growth is more heavily dependent on domestic consumption that it is on investment (making us more fragile and prone to demand driven shocks)
The first week of the new month is always data heavy, so we expect some moves across the board, as investors weigh up whether or not central banks can make the case for rate cuts. The market is pricing around an 85% chance of a Fed rate cut this month, whilst the ECB are only on a 35% chance