 What is a bigger driver of volatility in the markets, politics or monetary policies? Judging only from last week's development, politics got the nod, at least in the US. Investor sentiments initially sank on report that Trump was ready impose more tariffs on China, as soon as in December. But then, markets took a U-turn after presidents of both sides held a "long and very good" telephone conversation on Thursday. Suddenly, there is hope for de-escalating US-China trade war with the Trump-Xi meeting as sideline of G20 summit in Argentina on Nov 30 - Dec 1. Global equities rebounded on the news, with exceptional strength seen in Hong Kong. Chinese Yuan was also lifted sharply up from the psychologically important 7 handle. US treasury yields also staged a strong rally, with additional help from solid non-farm payrolls report. It should also be remembered that Sterling enjoyed a marvellous rebound on hope that there could be a Brexit deal for that extra EU submit in November. But of course, one could argue that the Pound was also supported by a slight hawkish turn in BoE's new projections in the quarterly Inflation Report. Over the week, New Zealand and Australian Dollar ended as the strongest ones, followed by Sterling. Yen and Swiss France were the weakest ones on return of risk appetite. Dollar staged a broad based rebound on Friday on NFP and treasury yields and ended just mixed. Looking ahead, three central banks will meet this week, RBA, RBNZ and Fed. All are expected to stand pat and are unlikely to move the markets. Economic data like UK GDP, ISM services, New Zealand employment, etc could trigger some movements. But in the end, it's likely US-China trade war, US mid-term election, Brexit negotiations, Italy-EU budget showdown that would determine the main directions. |
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