Cautious start to 2020

While 2019 was characterised by persistent uncertainty, it did end with two positive developments. The US and China agreed an interim trade deal, and a ‘no deal’ Brexit was avoided with the UK now set to leave the EU at the end of this month with an ‘as you were’ transition period running until the end of 2020. However, events at the very start of 2020 suggest it won’t be plain-sailing this year, with escalating tensions between the US and Iran prompting a spike in oil prices, a flight to the safety of core bond markets, a dip in equities and some strengthening of the dollar

The dollar, having weakened to over $1.12 against the euro into end-year, has recovered to around $1.1150 on foot of geo-political developments, and has strengthened to around $1.31 against sterling (from close to $1.33), which leaves the pound a little softer against the euro at close to 85.5p. Meanwhile, US 10-year bond yields have fallen by the best part of 15bps since the end of 2019 to just under 1.80%

Not surprisingly oil prices have spiked with Brent crude rising to around $70 a barrel from $66 at the end of 2019, which is its highest level since late May last year and brings the increase in prices since the end of September to around $12, something that will exert upward pressure on headline inflation rates in the short-term

It is a busy enough week for economic data with services PMIs due in the main economies today; Euro area inflation and retail sales scheduled for tomorrow; while Friday sees the release of the US employment report for December