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Trade sentiment improves, central banks in focus

US stock markets finished a touch higher after it was reported that the US are keen to renew trade negotiations with China. 

Wanting to pursue talks is still a long way from actually striking an agreement, but it gives off the right impression. Stocks in Asia were higher overnight for the same reason. Beijing has remained resolute in their stance, but a growing number of Chinese companies have expressed concerns about the trade spat, so the constructive move from the US should lift sentiment in the Far East.

The Beige Book gave a broadly positive outlook for the US economy but it did flag up a few areas of weakness. The update said the US economy was expanding at a ‘moderate pace’ but there were some ‘signs of deceleration’ in the price of goods and services. The update pointed out that employers are finding it difficult to attract workers, and that could lead to companies offering higher wages.  

Apple launched three new iPhones and a new watch yesterday. The smartphone maker is aware that their products are expensive, and the new smartphones cover a good cross-section of prices. The XR starts at $749, the Xs starts at $999 and the Xs Max costs upwards of $1,099. The new phones all have faster processors and improved cameras, and varying degrees of longer battery lives. The Series 4 watch costs between $399 and $499, and the screen is 30% larger and it has more fitness tracking features.

The Bank of England (BoE) will announce its latest interest rate decision at 12pm (UK time) and traders are expecting no change to the interest rate or the asset purchases programme. The BoE hiked interest rates last month – the first since the credit crisis. The recent solid growth figures and the impressive earnings report vindicates the central bank for hiking rates. Not long after the hike, we heard from Mark Carney, the BoE chief, who essentially said we could see one rate hike per year for the next few years. This week it was confirmed that Mr Carney will stay on in his role to provide stability. The developments regarding the UK’s exit from the EU is having a bigger impact on the pound than the economic updates, and dealers will be paying close attention to the situation.

We are also hearing from the European Central Bank (ECB) at 12.45pm (UK time) and we are not anticipating any change to the interest rate. The press conference will follow at 1.30pm (UK time).

The ECB made it clear they are keen to wind down the remainder of the bond-buying scheme at the end of this year, and traders will be listening carefully to any commentary regarding this matter. The latest inflation figures from the eurozone showed a slight pullback in the cost of living, and this will be a bit of a worry for Mario Draghi, the head of the ECB, as demand diminished.

Traders are pricing in an interest rate hike in Turkey, but President Erdogan has previously made it clear he has no intention of hiking rates.

Brent crude oil traded above $80.00 per barrel and WTI closed above the $70.00 mark yesterday as supply concerns pushed prices higher. Category Four storm Hurricane Florence is headed for the US coastline, and traders are worried distribution will be impacted. The Energy Information Administration reported that US oil inventories fell by 5.3 million barrels, and Reuters were anticipating a decline of 805,000 barrels. This happened amid a backdrop of fear that supply will fall as new sanctions are imposed on Iran by the US.

EUR/USD – despite the decent bounce back between mid and late August, the market remains in the wider downward trend that began in April, and while it stays below the 1.1750 level, its outlook could remain bearish. 1.1510 might act as support and a break below that mark could bring 1.1300 into play. If 1.1750 is cleared, 1.1850 could be targeted.

GBP/USD – has been pushing higher since mid-August, and if it can hold above the 1.3000 mark, it could edge up towards the 1.3200 area. A move to the downside might bring 1.2785 into play, and below that support might be found at 1.2661.

EUR/GBP – the key week and day reversal that we saw in late August could point to further losses and support might come into play at 0.8833 – 200-day moving average If the wider uptrend continues it could target 0.9100 or 0.9160. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.79 – the 200-day moving average.

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