Macro

Week ahead and market risks

Christopher Dembik

Head of Macro Analysis

Summary:  Weak Chinese data and Saudi Arabia oil attack have put an abrupt end to the equity rally. More risks are popping up this week that could have a negative impact on the market and increase volatility.


9/16/2019 – British PM Johnson meets Juncker for Brexit talks.

We don’t expect much from this meeting. Our central scenario is that snap elections will be announced very soon, which would postpone Brexit deadline once again. We don’t think a second Brexit referendum would bring more clarity, as the British population is still very divided over the issue (chart below).

We acknowledge the risk of Brexit accident remains elevated, but it could lead to positive unexpected outcome in other European countries. Indeed, based on the latest debates in Germany’s Bundestag, it seems that a technical recession is not enough to trigger a fiscal stimulus package in Germany, but a hard Brexit could certainly change the mind of the German government. The only pending question is to know whether it will be too late to implement a counter-cyclical policy.

9/18/2019 – FOMC meeting

The latest US macro data are quite good, but the motivation to lower rates (25bps already priced in) will be linked to external factors e.g. trade war but more importantly tightened financial conditions at the global level due to US shortage. The growing risk is that the Fed pauses after this rate cut, which could be clearly negative for the market. We will focus on the FOMC meeting a bit longer tomorrow in another short note.

9/19/2019 – Washington can move ahead with F-16 sale to Taiwan

The Trump administration could technically move forward with the sale of F-16 fighters to Taiwan, worth an estimated $8 billion. This move is widely embraced by the US Congress with support from both main parties. If the administration goes ahead with the sale, it will certainly infuriate China. In our view, it is unlikely that the sale will go on in the coming weeks, as it could seriously jeopardize US-China trade negotiations that will take place in October. However, it is quite certain that the F-16 sale will be part of the negotiations and could be used as powerful lever for action by the US administration to obtain concessions from the Chinese counterpart.

9/20/2019 – Germany’s government unveils climate change policy package.

This is mostly a crucial test of credibility for Merkel. Over the past months, her government has proclaimed it will unveil a significant climate change policy package to cut greenhouse gas emissions by 55% by 2030 compared with 1990. There have been many questions about how to do so. If Merkel underdelivers, it could constitute another setback for the Chancellor, and it could further weaken her position within the coalition.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.