Optimism returns as Tariffs could be delayed

  • The British economy was static in October
  • FTSE 100 in a tight range, but what is next?
  • Investors are buying back equities as Tariff delayed

The British economy was static in October: With polls suggesting the Conservative Party is still in lead and Boris Johnson could get a majority in the coming election, monthly GDP failed to record any growth in October as the annual growth is hovering below 1% for the 6th largest economy which is driven by the uncertainty of Brexit and trade war. Traders are still buying Sterling and pushing the currency higher against the other major currencies two days ahead of the election. Implied volatility in currency options is also approaching 20%, a continuation of the bullish move on British Pound against US Dollar. 1.32 is expected on the short-run.

Conservative still in the Lead:

Source: Bloomberg

FTSE 100 traders sold the index toward the support level at 7,150 at the opening and recorded a low at 7,138  losing almost 0.5%, backed by the recent disappointing GDP reading and stronger pound. However, traders are still betting on a Brexit with a plan at 31st of January which we believe put the levels of 7,250 in the play. Moreover, we are waiting for YouGov to publish their new projection tonight as we still expect the Tories to be in the lead. On other hand, if any decline is the spread between conservatives and labors polls was noticed, that could trigger a sell-off overnight.
Investors are buying back equities as Tariff delayed.  Major American indices are pointing to a higher opening as 15th December Tariffs are delayed according the official from US and China. Tomorrow will see the last Fed meeting of the year, when Fed Chair Jerome Powell will likely celebrate the positive effects of the rate cuts on the American economy and the recent bump in employment. Despite the gap between soft and hard economic data, the US is still healthy relative to other G7 countries, but a resolution to the trade conflict with China would be a catalyst for more improvement. We do not expect high volatility or a pickup in volume today ahead of the Fed meeting.

Source: Bloomberg