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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