US markets continued their declines yesterday, led once again by the tech sector as concerns about slowing demand for chips and semiconductors prompted further selling pressure, after it was reported that Apple had cut orders on its three newest iPhone models, ahead of the Christmas period.

Fears of an escalation in trade tensions rose after China alleged antitrust behaviour on the part of Micron Technology, and Samsung Electronics didn’t help, while expectations of some form of trade détente at next week’s G20 meeting between China and the US were knocked after US vice-president Mike Pence was particularly critical of Chinese trade tactics.

Asia markets continued the negative theme, with Nissan shares also coming under pressure, hitting their lowest levels in two years in the aftermath of the arrest of its chairman Carlos Ghosn for financial irregularities. Among the allegations are that he under reported or misled investors about the size of his salary, though how he was able to do that invites a number of questions about the level of financial scrutiny and auditing of the company accounts.

It is slowly becoming apparent that for all the sound and fury of the Eurosceptic wing of the Conservative party, they still don’t appear to have the 48 letters needed to trigger a leadership challenge. It could be that they are playing a longer game, or they are hoping that the Brexiteers still in cabinet may be able to tweak the deal; however given that the deal could well end up being voted down in parliament they could merely be biding their time.

In a further sign that tensions are rising, the Democratic Unionist party, who the Conservatives rely on for their majority, abstained on a number of measures contained within the finance bill, in a move that could be construed as a warning shot about their unhappiness with the withdrawal agreement, in so doing breaching the terms of the deal agreed in the wake of the 2017 election, when the Conservatives lost their majority.

When the EU withdrawal agreement was announced last week, EU chief negotiator Michel Barnier was keen to stress, along with EU leaders including German chancellor Angela Merkel, that there was no appetite to revisit anything within the deal. The reasoning quite understandably was to discourage the UK government trying to poke holes in it, or attempt to try and alter the parameters of what had been agreed. What they can’t have anticipated was that firstly Spain, then France and the Netherlands expressed concerns about the contents of it. Spain was the first to break ranks, claiming that the deal didn’t adequately address concerns over Gibraltar.

They were followed fairly quickly by France, Belgium and the Netherlands on the issue of access to UK waters in terms of fishing. While these demands met with push back from the EU Commission, there is concern that these countries might try and push through addendums to the agreement, further complicating the prospect of a deal actually getting through.

It would appear that it isn’t only politicians here in the UK who aren’t happy about the withdrawal agreement; it doesn’t appear to be particularly popular with EU member governments either.

Amid all the political hubbub of the last few days and the wild swings in the pound, the role of the Bank of England is likely to once again come into focus. Having seen big falls in the share prices of the UK banks in the past few days, questions are likely to be asked with respect to the Bank’s reaction function in the event of a 'no deal' Brexit.

At such a politically sensitive moment, Bank of England governor Mark Carney is probably cursing the fact that he will have to not only answer questions on the central bank’s outlook for the UK economy to the Treasury Select Committee later this morning, but he will also probably find himself dragged into the crosshairs of the current merits of the deal that the prime minister has cooked up with the EU, against the risks of leaving without a deal. His answers will inevitably invite scrutiny from both sides of the political divide.  

EUR/USD – continues to edge higher towards the 1.1500 area having found a base down near the 1.1210 area. A break above 1.1520 argues for a move towards 1.1620. The 1.1180 area remains a key support, with a break targeting a move towards 1.1000.

GBP/USD – key support remains near the August lows at 1.2650, and while above here the recent range is likely to remain intact. Below 1.2600 could well open up a move towards the 1.2000 level and 2017 lows. We need a move back above 1.2920 to stabilise and prompt a retest of last week’s peaks at 1.3075.

EUR/GBP – the 0.8940 area is the next key resistance, while above the 0.8820 area. Above the 0.8940 area argues for a move towards the August highs at 0.9100. Still in the broad range, with support also at 0.8740.

USD/JPY – last week’s failure to retest the October peaks at 114.60 appears to have set up a bearish weekly reversal which could well precipitate further losses towards 111.80. While below 113.70 the bias remains for a push back to the October lows.

 

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