• MTS Economic News 20191016

    16 Oct 2019 | Economic News

· The dollar gained for a second consecutive day on Tuesday as fading optimism over the latest China-U.S. trade truce prompted traders to buy the greenback after a selloff last week.

The greenback had come under selling pressure recently as the combination of some tepid U.S. data and hopes of a breakthrough in a protracted trade conflict between Washington and Beijing prompted funds to unwind some of their extreme dollar long bets.

Reports of a “Phase 1” trade deal between the United States and China last week had earlier cheered markets but the dearth of details around the agreement has since curbed this enthusiasm with oil prices extending declines, Chinese stocks weaker and the safe-haven yen holding gains versus dollar.

Against a broad basket of its rivals, the dollar strengthened for a second day and was up 0.1% to 98.55 and around 1% away from a near 2-1/2 year high of 99.67 hit earlier this month.

Fading hopes over a trade deal also pulled the Chinese currency lower.

China’s yuan slipped in offshore markets, a day after reaching a one-month high. The offshore yuan traded at 7.0787 against the dollar, off Monday’s high of 7.0503.

Though a monthly survey showed the mood among German investors worsened less in October than expectations, the euro failed to get much of a boost from the data with the single currency down 0.2% at$1.1007.

Elsewhere, sterling trimmed some of its earlier gains as officials raced towards putting a Brexit deal in place by the end of Tuesday.

· Britain’s latest proposals on the terms of its departure from the European Union are still not enough for an agreement and a legal text is needed by the end of Tuesday for a deal to be agreed at a leaders’ summit this week, three diplomatic sources said.

The pound was up 0.3% at $1.2646, trimming some of its gains after being up nearly 0.7% in early London trading.

· Sterling rose sharply against the dollar Tuesday after optimistic comments on Brexit from European negotiator Michel Barnier were backed up by reports that a draft legal text over the divorce was being drawn up.

“Our team(s) are working hard, and work has just started now today, this work has been intense over the weekend and yesterday, because even if the agreement will be difficult, more and more difficult, to be frank, it is still possible this week,” Barnier told reporters in Luxembourg on Tuesday morning.

He added that “any agreement must work for everyone,” saying it is “high time to turn good intentions into a legal text.”

· Last-ditch talks between Britain and the European Union to get a Brexit deal ahead of a summit of the bloc’s leaders this week went on past midnight to Wednesday, but it was still unclear if London could avoid postponing its departure due on Oct. 31.

· With two weeks to go until their next policy meeting, U.S. central bankers appear unconvinced a partial U.S.-China trade deal is enough to dispel the policy uncertainty that has weighed on economic growth for months.

And yet, with unemployment at decades-long lows and consumer spending strong, Federal Reserve policymakers remain far from united behind cutting borrowing costs any further than they already have.

“Right now, I see the economy in a good place, and policy accommodation in a good place,” San Francisco Fed President Mary Daly told reporters after a speech a the Los Angeles World Affairs Council & Town Hall.

Businesses retain an overarching sense of uncertainty, she said, even though “the gusting (of headwinds) seems to have gone down a little bit on the news of some progress on Brexit, some progress on trade negotiations between the U.S. and China,” she said.

But Daly said she still expects inflation to rise back to the Fed’s 2% target, and believes the central bank’s two rate cuts so far this year, in July and September, will help sustain the longest U.S. expansion in history.

· Speaking in London earlier in the day, St. Louis Federal Reserve Bank President James Bullard painted a gloomier picture.

Like Daly, he sees what he called continued “trade regime uncertainty” as a key risk to the U.S. economy.

But other risks remain high as well, including continued weak inflation and slowing global growth.

And unlike Daly, who said she sees policy as currently “slightly accommodative”, Bullard said in his view it may be “too restrictive”.

As a result, the Fed “may choose to provide additional accommodation going forward, but decisions will be made on a meeting-by-meeting basis,” he said in remarks to a conference in London on Tuesday.

· Twelve top White House contenders will take part on Tuesday in the first Democratic debate since the launch of an impeachment inquiry into Republican President Donald Trump’s efforts to pressure Ukraine to investigate leading rival Joe Biden.

· President Donald Trump looks likely to cruise to reelection next year under three different economic models Moody’s Analytics employed to gauge the 2020 race.

Barring anything unusual happening, the president’s Electoral College victory could easily surpass his 2016 win over Democrat Hillary Clinton, which came by a 304-227 count.

Moody’s based its projections on how consumers feel about their own financial situation, the gains the stock market has achieved during Trump’s tenure and the prospects for unemployment, which has fallen to a 50-year low. Should those variables hold up, the president looks set to get another four-year term.

· U.S. President Donald Trump is expected to raise the possibility of U.S. retaliation against an Italian tax on digital companies when he meets with President Sergio Mattarella on Wednesday, a senior administration official said.

· South Korea’s central bank cut its policy interest rate for the second time in three months on Wednesday, as expected, to support a slowing economy and address mounting deflationary pressures.

The Bank of Korea’s monetary policy board trimmed the base rate KROCRT=ECI by 25 basis points to 1.25%, a media department official said. BOK Governor Lee Ju-yeol is due to hold a news conference from0220 GMT.

· Oil prices fell further on Tuesday, after heavy losses in the previous session following two days of weak Chinese data and as investors continued to fret over prospects for a U.S.-China trade deal despite signs of a truce last week.

Brent crude fell $0.68, or 1.15%, to $58.67 a barrel, while U.S. West Texas Intermediate (WTI) crude settled down 78 cents, or 1.5%, at $52.81.

The National Bureau of Statistics (NBS) reported on Tuesday that China’s factory gate prices declined at the fastest pace in more than three years in September.

That followed customs data on Monday that showed Chinese imports had contracted for a fifth straight month.

The U.S.-China trade dispute also continued to cast a shadow on the global economy.


Reference: Reuters, CNBC

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