Another Week of Sanctions
Yesterday the US government imposed sanctions against two Turkish ministers over the detention of US pastor Andrew Brunson. Today’s target was Russia, who was held in contempt by the US Senate due to alleged election meddling as well as their involvement in both Syria and the Ukraine. A newly passed act aims to restrict Russian government bonds, energy & oil projects as well as Russian poitical actors and business ogliarchs by means of sanctions. The current administration seems determined to restore a sense of ‘political order’ to the world, however, this aggressive foreign policy also carries the risk of bringing the sanctioned parties closer together. Russia, Turkey, China Iran and Syria are all countries of great strategic importance and geopolitical influence. They’re also armed with considerable resources. As the global leader in national debt, the US could find itself in a precarious situation if it attempts to take on the world.
Asia in Decline
Yesterday the Nasdaq increased by 1.24%, showing an impressive recovery from earlier this week. Apple’s flash reports also gave traders cause for optimism. Asia’s markets on the other hand continue to be under pressure due to the increasing China-US tariffs. Despite previous positive results, the Shanghai Composite is now 0.3% in the negative while the Hang Seng and Nikkei are close to zero. The USD reached a two week high only one day after the Fed interest rate meeting. Oil on the other hand could only marginally recover from its poor results earlier this week. WTI is now below 69 dollars while Brent is near 73 dollars.
GBPUSD
Yesterday the Bank of England (BoE) decided to raise interest rates, joining the ranks of central banks pursuing the policy of monetary tightening. That said, their post-meeting summary was less than stellar, with a 1.5% GDP growth, rising labor costs and inflation exceeding 2%. The Fed’s post meeting summary on the other hand were much more impressive. This may be the reason why, contrary to expectations, the pound weakened following the BoE meeting.
The pound’s slight increase after the announcement was so short lived that it now only appears as a minor spike on the hourly charts. The attempt to close the interest rate gap between the dollar and the pound proved insufficient to stop the pound’s depreciation. The Cable fell below 1.3083, then slowly slid down to 1.2997. This decline gained more momentum during the opening of today’s European trading session. With the 1.2997 line breached, the path is now open to 1.2960, which is the lowest point of the past month. Price falling below this line would be a strong indicator of a continuing downwards trend.
EURCHF
The Swiss franc is on the rise against the euro, once again confirming its role as a safe haven currency. There’s no doubt that the issue of Brexit is a cause for concern for members of the european community. It’s also clear, as evidenced by several recently published analyses, that suggest the imact of the China-US trade war could be harsher on Europe than the two parties in question. In this case, Europe’s hegemony in transport and forwarding has become a liability. US-EU relations have also recently come into question, though there have been some concession of that front. One indicator of the growing rift between the US and the EU is the markets reaction to the Trump-Juncker meeting. The lack of any major investor optimism following their meeting suggests is was more of a PR stunt on, rather than a genuine attempt to resolve these issues.
In the midst of all this turbulence, Switzerland continues to live its tranquil alpine lifestyle. According to a report earlier this week, Credit Suisse, one of the leading global financial insitutions managed to increase it’s assets under management by almost 30% within a year, proving that Switzerland remains an incredibly attractive to investors. The franc is now strengthening against the euro in a well defined trend chanel, moving the pair from 1.17 to 1.15 in three weeks. Each successfive prive wave reaches new lows, while any attempt to move upwards quickly runs out of steam when they hit their first resistance line. There may still be a chance for the pair to rise, since the charts show the fran may be overbought, phich may pave the way for a brief increase. This correction could potentially last until 1.1560, from where it would likely rebound, making a continued decline the most likely scenario.
Sincerely,
Laszlo | Market Analyst
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