The results of a meeting on Friday between U.S. Treasury Secretary Steve Mnuchin and China’s President Xi Jinping could be important for foreign exchange investors.
The dollar remained fairly robust, trading up 0.2 percent at 97.1 against a basket of major currencies. It fell on Thursday when poor U.S. retail sales suggested a sharp slowdown in economic activity at the end of2018.
· “Calling the next move in the dollar is pretty tough right now. The start of the year saw investors move into under-valued risk assets, but right now the mood is shifting towards one of secular stagnation,” said Chris Turner, head of foreign exchange strategy at ING.
Any negative news flow out of the trade discussions on Friday could push the dollar back up again, given investor demand for safe-haven assets during times of uncertainty, Turner said.
· The euro was 0.2 percent lower at $1.1274.
The single currency is headed for a second week of losses and is down by 1.7 percent year to date thanks to weaker-than-expected euro zone data.
· Brexit Update: GBPUSD Slips Slightly as PM May’s Brexit Strategy Defeated
British Prime Minister Theresa May suffered an expected defeat in the House of Commons Thursday as the Brexit deadline draws ever closer. Britain is scheduled to leave the European Union on March 29th (in 43days) but with the recent lack of progress, speculators are growing increasingly concerned a comfortable exit is possible.
The Pound traded slightly lower following the defeat but within the day’s range, largely because the outcome met expectations. As for the road ahead, PM May will now attempt to garner concessions from Brussels, but many analysts believe the effort to be a fruitless affair. Should her attempt fail, and no deal is provided, February 27th looks to be the next key vote in which Parliament may vote to extend Article 50 under the Cooper Amendment
· USD/JPY Technical Analysis: Approaching 110.00 as yield differentials tease triangle breakdown
USD/JPY is currently trading in the red at 110.29 and could soon drop to the psychological level of 110.00, having dived out of the rising channel in early Asia.
The spread between the 10-year US and Japanese government bond yield (US 10Y-JP10Y)is teasing a symmetrical triangle breakdown, which if confirmed, would open the doors to 255 basis points (Jan. 3 low). That would only add to the bullish tone around the anti-risk JPY.
A strong bounce from the ascending 10-day MA, currently at 110.19, would revive the immediate bullish outlook.
· Congress passed legislation to avoid another government shutdown Thursday, moving to prevent one crisis even as the fight over President Donald Trump's proposed border wall escalated.
The GOP-controlled Senate easily cleared the bill, which included only about a quarter of the money Trump sought for border barriers, by an 83-16 margin. The Democratic-held House approved the measure comfortably in a 300-128 vote.
The president plans to sign the proposal and declare a national emergency in an attempt to fund the wall. His expected executive action would in part try to appease conservatives who argued he should oppose the plan because it does not meet his demand for $5.7 billion to construct barriers.
The legislation would keep the government running through Sept. 30. Lawmakers and Trump have until midnight Friday to fund nine departments and prevent the second partial closure since December.
· Market expectations for U.S.-China trade talks have shifted such that they would now cheer any result that lacked the Trump administration raising or applying more tariffs on March 1, says Hannah Anderson, a global market strategist at J.P. Morgan Asset Management.
The S&P 500 remains more than 1 percent higher for the week amid optimism about the trade talks.
Earlier in the week, Bloomberg, citing sources, said U.S. President Donald Trump is considering a 60-day extension on the deadline for trade talks before higher tariffs might take effect. The South China Morning Post also reported, citing sources, that Chinese President Xi Jinping is scheduled to meet with the U.S. delegation on Friday.
"While it is encouraging that the U.S. seems to be leaning toward giving policymakers more time to reach a settlement, the U.S. delegation appears to be holding firm on its view that greater Chinese purchases of U.S. goods and protection for U.S. intellectual property are meaningless without mechanisms to ensure China lives up to its promises," Anderson said. "China, understandably wary of being tied to too strict of a timeline, has resisted such demands in the past."
"This is not to say a deal is impossible, but the grand bargain the U.S. administration has been angling for remains a long way off. Smaller deals on specific aspects of the larger trading relationship, rather than one deal to resolve all complaints, are likely throughout the year," she added. "Markets may have to accept trade headlines are here to stay."
· Goldman Sachs analysts suggest that in the UK, as there is still no majority in the parliament for PM May’s Brexit deal, and no majority for leaving without a deal, chances are growing that the March 29 deadline will be extended.
Key Quotes
“The path forward lacks agreement as May seeks changes from the EU in order to win support for her deal but may ultimately need to pivot to a softer form of Brexit in order to secure a majority.”
· Analysts at TD Securities note that China’s January CPI came in at +1.7%/y and was below the market estimate of +1.8%/y while PPI was also disappointing at +0.1%/y, compared to an estimated +0.3%/y.
Key Quotes
“With CPI and PPI coming in below expectations, the market’s focus is shifting towards the prospect of deflation returning.”
“Data so far has indicated that activity is slowing and with the risk of depressed corporate earnings, China’s demand for imports could fall.”
· There has never been so much interest in elections at the European Parliament.
For the first time in 40 years, anti-establishment parties are expected to end the dominance of mainstream politics at the European Union.
This year's vote takes place from May 23 to 26. Given the U.K.'s intention to leave the European Union, the European Parliament will have fewer MEPs (Members of the European Parliament), falling from 751 to 705members.
"The next European Parliament won't have a clear majority as a result of these elections," Alberto Alemanno, a European law professor at HEC University in Paris, told CNBC at an event in London last week.
This suggests it will be more difficult to implement laws at the European level.
· Goldman Sachs analysts suggest that Emerging Markets currencies are still performing well, even with downshifting of developed market growth rates and while globally investors are positioned long dollar.
Key Quotes
“These higher beta currencies have been a drag on EM equity returns in recent years but we believe that they may become additive at a time when the fundamentals and prospects for Emerging Markets are also looking brighter."
· Brent crude oil prices slipped away from 2019 highs above $65 per barrel reached earlier on Friday, as economic concerns countered OPEC-led supply cuts and a partial shutdown of Saudi Arabia’s biggest offshore oil field.
Brent rose as far as $65.10, pushing past the $65 mark for the first time this year, before falling back to $64.69 by 0751 GMT. That was still 0.2 percent above the last close.
The international benchmark for oil prices is near a 3-month high and set for a 4 percent gain for the week.
U.S. West Texas Intermediate (WTI) crude futures were at $54.45 per barrel, up 4 cents from their last settlement.
Traders said prices were buoyed by the partial closure of Saudi Arabia’s Safaniyah, its biggest offshore oil field with a production capacity of more than 1 million barrels per day (bpd).
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices continue to pressure chart resistance, but a bearish Evening Star candlestick pattern still warns of topping. A daily close above the February 4 high at 55.75 would invalidate the setup and expose the 57.96-59.05 area. Alternatively, a downswing from here that takes out support in the 49.41-50.15 zone opens the door for a decline back toward the 42.05-55 region.
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