· The dollar edged down against a basket of currencies on Wednesday as uncertainties over trade and the global economy clouded the U.S. currency’s near-term outlook and restricted it to tight trading ranges against other major currencies.
“The trade conflicts and tensions, the (U.S. government) shutdown and certainly more chatter about global growth in 2019, those are the factors that need to be hashed out before we get a clear direction,” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
· The partial U.S. government shutdown, now in its 33rd day, added to investors’ unease. U.S. Republican Senate Majority Leader Mitch McConnell said he planned to hold a vote on Thursday on a Democratic proposal that would fund the government for three weeks.
· The dollar index, which tracks the greenback versus the euro, yen, sterling and three other currencies, was down 0.18 percent at 96.13. The index has risen nearly 1 percent over the last two weeks.
· The greenback was up 0.2 percent against the yen after the Bank of Japan on Wednesday kept its stimulus program in place.
The BOJ cut its inflation forecasts but maintained its stimulus program, with Governor Haruhiko Kuroda warning of growing risks to the economy from trade protectionism and faltering global demand.
In its outlook report, the BOJ cut its inflation forecast for the fiscal year starting in April to 0.9 percent from 1.4 percent, citing lower oil prices as the primary reason.
· The European Central Bank is all but certain to keep policy unchanged on Thursday but may acknowledge a sharp slowdown in growth, raising the prospect that any further policy normalization could be delayed.
The ECB last month ended a landmark 2.6 trillion euro ($2.96 trillion) bond purchase scheme and maintained its guidance that an interest rate hike is likely late this year.
But growth appears weaker than thought just a few weeks ago, suggesting that its next move could even be an easing of policy rather than a tightening.
Germany, France and Italy, the euro zone’s biggest economies, barely grew in the fourth quarter and ECB President Mario Draghi has already acknowledged that the slowdown could be longer than expected, setting up the ECB for a dovish meeting.
At most, Draghi could downgrade the bank’s economic assessment, arguing that growth risks are now tilted to the downside. He could also provide clues about new loans to banks, called Long-Term Refinancing Operations or LTROs, likely to come in the spring.
· “In such a fluid environment, when net asset purchases have just ended and the ECB has not yet achieved its inflation goal, Mario Draghi will want to get ahead of a deterioration in confidence to avoid it becoming self-fulfilling,” Deutsche Bank said in a note to clients.
· U.S. economic growth will take a hit this quarter from the longest-ever government shutdown, keeping the Federal Reserve on the sidelines until at least its April 30-May 1 meeting, a Reuters poll of economists showed.
But the probability of a U.S. recession in the next 12 months held steady from last month at 20 percent, according to the median forecast, while the chance of a recession in the next two years was also steady at a median 40 percent.
The latest Reuters poll of over 100 economists taken Jan 16-23 also showed a cut to the 2019 quarterly growth outlook, in line with a recent run of weaker U.S. economic data pointing to rougher sledding for the economy this year than last year.
“With the economy possibly easing and inflation not stirring in a meaningful way, the case for additional tightening in monetary policy seems weak,” noted Michael Moran, chief economist at Daiwa Capital Markets.
When asked how much of an impact the shutdown would have on U.S. GDP for this quarter, the median was for a 0.3 percentage point trim. But forecasts ranged between 0.1 and 1.3 percentage points.
Analysts expected the U.S. economy to grow at a 2.1 percent annualized pace this quarter, down from 2.3 percent forecast last month, followed by 2.3 percent in the second quarter and then slowing to 1.9percent by the end of the year.
Growth forecasts were trimmed for each quarter this year.
· “If the shutdown were to last for the entire quarter, it could subtract around a full percentage point from Q1 inflation-adjusted output growth. In a worst-case scenario, real GDP could indeed contract in Q1 if this Congressional impasse remains unresolved,” said Brett Ryan, senior U.S. economist at Deutsche Bank.
“However, we have not made any changes to our current-quarter real GDP growth forecast...given the uncertainty around these estimates.”
· U.S. President Donald Trump said on Wednesday he would hold an alternative event to the State of the Union address after Democratic leader Nancy Pelosi barred him from speaking in the House of Representatives until the partial government shutdown ends.
The clash between two of Washington’s most powerful leaders escalated the standoff that has partly closed the government for 33 days and that threatens the U.S. economy and the livelihoods of about 800,000federal workers.
The State of the Union speech, used by presidents to announce their policy goals for the year, has become a hostage to the showdown between Trump and congressional Democrats over his demand for funding for a U.S.-Mexico border wall.
· North Korean leader Kim Jong Un spoke highly of U.S. President Donald Trump, expressing satisfaction over results of recent talks between the country’s delegation and U.S. officials to discuss the second summit between him and Trump, state media said on Thursday.
Kim said he will trust in Trump’s positive way of thinking, KCNA said, weeks after Kim warned North Korea could seek a “new path” if U.S. sanctions and pressure against the country continued, suggesting the North Korean leader is focused on the sit-down with Trump to produce results.
Trump will hold a second summit with Kim in late February but will maintain economic sanctions on Pyongyang, the White House said last week after Trump met Pyongyang’s delegation including its top nuclear negotiator.
· The oil market fell on Wednesday as a widespread economic slowdown, which may dent growth in demand for fuel, weighed on energy prices.
Crude futures earlier got a boost from hopes that Japan and China would take fiscal stimulus measures to stem the slowdown. Prices got further support from expectations that U.S. crude stockpiles fell last week and official data indicated slowing growth in U.S. shale oil output in the coming years.
But by midday benchmark futures were on pace for a second straight day of losses.
International Brent crude oil futures fell 35 cents, or about half a percent, to $61.15 per barrel around 2:30 p.m. ET. U.S. West Texas Intermediate crude futures ended Wednesday’s session down 39 cents, or about 0.75 percent, at $52.62 per barrel.
Reference: CNBC, Bloomberg
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