This week, the markets continued to move up after last week’s sell-off. The sell-off happened after the yield curve in the United States inverted. This happened when the yield of the three-month treasuries rose above that of the ten-year. Such an inversion is usually seen as a red flag in the financial market because when it has happened before, it tends to lead to a recession. However, a number of analysts have argued that this is usually not the case. Further, they have said that there are times when there is an inversion that doesn’t lead to a recession.
Traders also focused on the political environment in the United States. This is after the special counsel Robert Mueller completed his investigation as to whether the Trump campaign coordinated with the Russians during the 2016 campaign. In a four-page summary released on Sunday, the attorney general said that the president and his campaign were exonerated on the Russian case. He however said that the president was not exonerated on whether he tried to obstruct justice. Throughout the week, the politicians have been asking for the attorney general to appoint a special counsel to release the report.
Brexit was another major topic this week. Confusion on this issue continued because the members of parliament could not agree on anything. A few weeks after voting against Theresa May’s proposal, the members took control of the issue. This week, they tabled about 16 bills to try and see the one that will garner most votes. All these options failed to find adequate votes, which leads to more confusion. Theresa May announced that she would step down as Prime Minister if her bill passes. Today, she will reintroduce her bill to parliament and the expectations are that it won’t find enough supporters.
The Reserve Bank of New Zealand made headlines this week after it released its interest rates decision. As expected, the bank left interest rates unchanged at 1.75%. What moved the bank’s guidance that it could cut interest rates if the economy continued to weaken. Previously, investors were expecting for the bank to leave rates unchanged and raise them when the time comes. The dovish tone from the RBNZ came as other global central banks are doing the same.
Turkey was also in the headlines this week. This happened as the country prepares for an important election on Sunday. The currency declined sharply as the country struggles to defend it. The central bank was forced to intervene and raise interest rates to 1200%. The government had earlier on directed the central bank to withhold lira liquidity from the offshore swap market in a bid to protect it from declining. This move made it almost impossible for foreign investors to bet against the currency.
Deutsche Bank was also in the news this week after it emerged that the bank was considering another capital raise. This is as the negotiations between the bank and rival Commerzbank continue. The two banks are talking about merging, in a deal that is being championed by the German government and key shareholders. This issue matters because Deutsche bank was once the biggest bank in Europe but has lost its shine in the past few years.
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