· The pound hit multi-year highs against peers on Friday after a convincing Conservative Party win in the UK election, which is expected to clear the Brexit political gridlock that has hounded Britain’s markets for years.
The pound GBP=D3 surged more than 2% to reach $1.3516, the highest since May 2018, before settling at $1.3469.
In Asian currencies, the yuan gapped higher and the Japanese yen fell after a source told Reuters that the United States and China have agreed some tariff reductions and a delay in U.S. tariffs on Chinese goods set to go effect on Dec. 15.
In the offshore market, the yuan CNH=D3 pulled back slightly to 6.9672 per dollar, after surging more than 1% on Thursday to the highest since Aug. 1 due to relief about a resolution to trade friction.
Against the dollar, the yen JPY=EBS fell 0.28% to 109.63, the weakest since Dec. 2.
The euro EUR=EBS rose 0.35% to $1.1171, slightly below its highest since Aug. 13.
The dollar index .DXY against a basket of six major currencies fell 0.59% to 96.819, approaching the lowest since July this year.
· Conservative Party leader Boris Johnson has secured a five-year term as prime minister with a comfortable parliamentary majority, paving the way for Britain to leave the European Union by the end of next month.
It is expected that the newly-elected prime minister will return to Downing Street with an outright majority of 74 seats, according to an updated version of the exit poll.
“Boris Johnson is set for a huge majority in the general election, which will give him a free hand to pursue the long-term trade deal with the EU he wishes,” Mujtaba Rahman, managing director of Europe at Eurasia Group, said in a research note shortly after the exit poll was published Thursday evening.
“It means the U.K. will leave the EU on 31 January. Crucially, Johnson will not be beholden to the 20 hardline Brexiteers in the European Research Group, who would have enjoyed much more influence if had won only a small majority. ”
“Johnson will have to decide whether to remain closely aligned with the EU, or diverge sharply,” Rahman said.
“An orderly Brexit from the EU on 31 January 2020 will reduce the Brexit uncertainty somewhat,” Kallum Pickering, senior economist at Berenberg, said in a research note published Thursday.
“Of course, the U.K. could still have a hard exit from the single market and customs union at the end of 2020 if the U.K. and the EU do not manage to strike a free-trade agreement in time for the end of the transitional period.”
· Jeremy Corbyn announced he will not be leading the U.K.’s opposition Labour party in future elections, following what he called a “disappointing night.”
· Senior Chinese diplomat Wang Yi said on Friday that the United States had seriously damaged the hard-won mutual trust between the countries by criticizing Beijing over issues such as Hong Kong and the treatment of Muslim Uighurs.
· U.S. President Donald Trump congratulated British Prime Minister Boris Johnson on the latter’s election win and said that Britain and the United States will now be free to strike a ‘massive’ new trade deal after Brexit.
· According to Deutsche Bank analysts, the Brexit Withdrawal Agreement will pass soon, possibly before year-end and the UK will leave the EU by the end of January.
Key Quotes
“The big question is whether Mr Johnson will stand by his commitment to have the transition end on December 31st next year and in reality only have a loose ‘harder’ relationship with the EU or whether he decides to pivot and go for a more ambitious, ‘softer’ relationship that will take time to negotiate and will require an extension to the transition agreement. Difficult to tell at the moment.”
“The big majority allows him to freedom to choose either path. A separate longer-term issue that will bubble in the background is the expected very strong SNP performance in Scotland. The independence issue won’t go away even though the big Tory majority gives little scope for it to come to fruition.”
· US and China moved toward striking a trade deal to avert a new round of tariffs.
The deal could be announced later in the day, after US President Donald Trump reportedly signed off on the terms.
Washington is said to have agreed to remove some tariffs, while Beijing would boost purchases of US farm goods.
· In view of Danske Bank analysts, today's economic highlight is the release of US retail sales for November.
Key Quotes
“Private consumption has been strong in the US despite the weakness in manufacturing and there is nothing to suggest it should end now although retail sales are very volatile/noisy on a monthly basis.”
“Today, markets will look out for official confirmation of a phase one trade deal between the US and China ahead of the planned 15 December tariff rate hike.”
· Washington has set its terms for a trade deal with China, offering to suspend some tariffs on Chinese goods and cut others in exchange for Beijing buying more American farm goods, U.S. sources said on Thursday.
Beijing’s silence, however, fueled questions over whether the two sides can come to a truce in their bitter trade war before a new round of tit-for-tat tariffs takes effect on Sunday.
· Oil prices extended gains on Friday, scaling three-month highs as the United States and China moved closer to a resolution to the 18-month trade war between the world’s two biggest economies that has raised big questions about global demand for crude.
Brent futures LCOc1 climbed 47 cents, or 0.7%, to $64.67 a barrel by 0730 GMT, its highest since Sept. 23.
West Texas Intermediate (WTI) crude CLc1 was up 34 cents, or 0.6%, to $59.52 a barrel, the highest since Sept. 16.
Reference: Reuters, CNBC
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