November 29th, 2019 - 3 Things That Happened This Week
Updated: Dec 3, 2019
GBP USD EUR
UK poll on upcoming general election tips Boris for the win
The latest YouGov poll shows Boris could be set for the biggest election win in over 30 years, the largest previously held by Margaret Thatcher. The Conservatives made gains at Labour’s expenses, particularly in the Midlands and north of England, typically Labour strongholds. The outcome would present positive news for investors who tend to favor decisive victories no matter the outcome.
Scores on the doors:
Conservatives - 359 Seats
Labour - 211 Seats
SNP - 43 Seats
Liberal Democrats - 13 Seats
The result would give BOJO a majority of 68, however its important to remember UK polls have been misleading in the past so take these numbers with a pinch of salt. GBP has strengthened significantly against a basket of currencies due to increased certainty, even though a Conservative victory wouldn't necessarily guarantee BREXIT. This has been further compounded by the DUP who have said that they will not back the current deal.
GBP strengthened from a low of 1.2820 to a high of 1.2960 against the USD. GBP also climbed against the EUR by nearly 1%.
CNY USD HKD
China furious after Trump signs Hong Kong bill into law
President Trump has signed into law two bills that will support pro-democracy protesters in Hong Kong after it gained bipartisan support in the House of Representatives. Although Trump said he signed the law “out of respect for President Xi (Jinping), China and the people of Hong Kong", China’s Foreign Ministry threatened “counter measures” and that Washington had “seriously interfered with China’s internal affairs”.
What do the bills say?
Congress will examine Hong Kong’s special status on an annual basis. Rescinding this could jeopardize the estimated $38B in trade between the US and Hong Kong.
Impose sanctions on anyone who has suppressed human rights in Hong Kong, *cough China cough.
Blocks new export licenses for tear gas, rubber bullets and handcuffs to be sent to the HK police force.
Although hailed by many, the signing of the bills has caused Asian markets to retreat under a fear that trade talks could be jeopardized. This ends a difficult week for Trump following impeachment hearings and seeing fellow Billionaire Michael Bloomberg put his hat in for the US presidential race 2020. One thing that is for certain is that the US/China trade war continues to have a slowing effect on the global economy.
Asian currency movements against the USD were subdued as traders hesitate on making bets over lack of concrete details on talks and a lite trading week in the US.
IMF warns South Africa's pain is going to prolong
South Africa’s rand weakened after the IMF said on Monday that the country faced a prolonged period of weak economic growth marked by rising unemployment, inequality and greater credit-rating risk if the government did not act fast to implement reforms. However, despite winning 57.5% of the votes in this year's election, unrest amongst President Cyril Ramaphosa’s ANC (African National Congress) is expected to delay the much-needed reform.
IMF cites low job creation and per capita GDP as the main cause of concern.
S&P Global Ratings downgraded its outlook from “Stable” to “Negative” on account of South Africa’s growing debt burden.
Deficit rises above 6% of GDP on more Eskom bailouts.
Debt-to-GDP through 60%, seen at 70% before 2022/2023.
However, despite the IMF news, ZAR has seen a bounce today on the back of news that South African Airways (SAA) is close to securing a government-backed loan. Despite not making a profit since 2011 and sitting on $2Bn in losses in 13 years.
At the time of writing, ZAR has strengthened slightly today to 14.63 versus the USD, after a low of 14.70 earlier in the week. ZAR has had a turbulent year fluctuating 14.68%. Some investors see a potential drop as much as 10% against certain currencies with 15.50 (year low) touted as a realistic short term level against the USD.