Traders come into this week with much anticipation of the monetary policy meeting of the FOMC which could signal a key shift on Wednesday. However two other central banks also update on policy, there is another key date in the Brexit diary and not to forget an ongoing focus on US driving a protectionist agenda. We look at the outlook for forex, equity markets and commodities.
Geopolitical uncertainty has been a key driver of financial markets recently. Don’t tell him, but Donald Trump has a significant pull on the markets, as shown by the prospect of trade tariffs and the impact of changes to key personnel in his administration. Reports that Trump is planning c. $60bn of tariffs targeted at China have driven speculation over rising protectionism and rattled market sentiment. How China and other trading nations respond is not yet known, but trade disputes are rarely growth positive. This could also drive expectation of a dollar negative impact, at least against major currencies (especially ones that run surpluses such as the yen and euro). Other geopolitical aspects to consider include the dispute between Russia and the UK (not especially impacting markets yet) and this week’s EU Summit where the EU Council is expected to decide on the UK’s potential transition deal. With both sides apparently willing to make concessions this could ease towards a softer Brexit but it would be foolish to count any chickens yet, especially knowing how EU negotiations never tend to be easy (just ask Greece). However, this week there will be some interest away from politics, as three central banks announce monetary policy. Most notably, the Federal Reserve is nailed on to add a further 25 basis points; but the key risk will be whether the new Fed chair begins to lead the FOMC on a more aggressive path and how this impacts on market sentiment.
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