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Global market watch - 16th May 2019

Yesterday saw the usual Brexit comments from various sources, but what was probably discussed the most was the comment from UK Brexit Secretary Barclay, stating that if the Commons rejects the withdrawal bill again, then the Barnier deal is dead. It will probably also signal the end of Theresa May’s premiership. The market also has one eye on global events and as such prefers to buy yen, dollars and Swiss francs. Therefore, GBPUSD, GBPJPY and GBPCHF weakened by around 1% on the day.

Eurozone GDP was as expected at 0.4% and didn’t manage to halt the recent euro weakening against the dollar in European trading. It was left to President Trump to save the euro, as he postponed his decision to add tariffs onto EU car exports for six months. This helped EURUSD close unchanged on the day. Today, we have the Eurozone trade balance for direction. ECB’s economist Praet will speak this morning and will be followed by Bundesbank President, Weidmann. This afternoon has ECB’s de Guindos and Coeure scheduled to talk.

With the FX markets looking at the equity markets struggling to hold on to previous gains, the dollar was bought. This continued for most of European trading until President Trump’s decision on EU tariffs sent the dollar buying sharply into reverse. Fed's Barkin added that he was watching closely for the trade war's impact on US confidence, and it was later reported that a US delegation may head to China for talks as early as next week. On the economic side, the US economy actually started to show signs of a slowdown in April, as retail sales fell by 0.2% on a monthly basis, instead of increasing by 0.2% as expected.

Manufacturing output also disappointed the market, falling by 0.5% compared to the previous month, thereby being well below the expected 0.1% increase. Overnight, it has emerged that President Trump has declared another national emergency. He has given the US Commerce Secretary, Wilbur Ross, the power to block transactions involving communications technology built by companies controlled by a “foreign adversary” that put US security at an “unacceptable” risk. This would directly affect Huawei and ZTE and is not good for US-Chinese trade talks. There are also reports that China has started to sell US Treasuries. If this continues, it will be harder for the US to service its debt and could force US interest rates higher.

Weak Chinese and Australian data weighed upon the respective currencies and encouraged yen buying. However, the market made a quick turnaround later in the afternoon, as it was announced that the US and Mexico had substantially reached an agreement to remove metal tariffs and that Canada was now being given a chance to work on its own deal with Washington. Overnight, Australian employment data showed a higher unemployment rate of 5.2% from last month’s 5.0%.

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