· The dollar held its gains versus the yen and Swiss franc on Friday as investors bought riskier assets on news that China and the United States had agreed to roll back tariffs as part of an as yet unfinalised preliminary pact to end their trade war.
China and the United States have agreed to roll back tariffs on each others’ goods in a “phase one” trade deal if it is completed, officials from both sides said on Thursday.
Sentiment is likely to remain supportive for the dollar, equities and other risky assets as a de-escalation in the U.S.-China trade war removes a huge risk to the global economic outlook.
The dollar held steady at 109.26 yen JPY=EBS on Friday, close to a five-month high, and was headed for a 1% gain for the week.
The greenback CHF=EBS edged higher to 0.9949 Swiss franc, on course for a 0.9% gain.
The dollar index .DXY against a basket of six major currencies stood at 98.136, up 1% this week.
The progress in resolving the 16-month long trade war also supported the China's yuan. In the onshore market, the yuan CNY=CFXS traded at 6.9788 per dollar, and it was set for its fifth straight weekly gain, which would be the longest winning streak since February.
However, there is still some scepticism about a trade deal as officials inside and outside the White House have bristled at the notion of giving up punitive tariffs.
Muddying the water further, White House spokeswoman Stephanie Grisham told Fox News Channel in an interview on Thursday that the United States is “very, very optimistic” about reaching a trade deal with China soon.
· Westpac analysts note that for the UK, GBP has moved sharply higher as market optimism has grown over an eventual Brexit deal.
Key Quotes
“While we continue to harbour significant doubts over the effect that Brexit will have on the UK economy over the medium-to-long term, we expect the market's current exuberance to be sustained through early 2020 as a deal is delivered on January 31.”
“Consequently, we look for Sterling to appreciate further to USD1.33 at March 2020. Thereafter a lengthy period of stability is anticipated as the economy and markets process the changes taking place in the UK economy. We expect a Bank Rate cut in the June quarter. This will be in the midst of other central banks easing, and will help limit Sterling buying post the smooth Brexit outcome.”
· Ratings agency Moody’s downgraded its outlook on India’s ratings Thursday to “negative” from “stable,” citing increasing risks that the country’s economic growth will remain “materially lower than in the past.”
Moody’s said the change partly reflected lower government and policy effectiveness in addressing “economic and institutional weaknesses” that led to a rise in the already high levels of the debt burden.
· German exports rose more than expected in September, data showed on Friday, providing some relief amid widespread concerns that Europe’s largest economy will dip into recession in the third quarter.
The Federal Statistics Office said seasonally adjusted exports increased by 1.5% on the month while imports climbed by 1.3%. The trade surplus widened to 19.2 billion euros from an upwardly revised 18.7 billion euros in the prior month.
Economists polled by Reuters had expected exports to rise by 0.4% and saw imports unchanged. The trade surplus was expected to come in at 18.1 billion euros.
· China’s exports and imports beat forecasts in October, Reuters reported citing data from the country’s customs.
In dollar terms, exports fell 0.9% while imports fell 6.4% from a year ago in October.
Economists polled by Reuters had expected October exports to fall 3.9% and imports to fall 8.9% from a year earlier
· Japanese Prime Minister Shinzo Abe on Friday asked his cabinet to compile a package of stimulus measures to support the economy and build infrastructure to cope with large natural disasters, the government’s top spokesman said.
Chief Cabinet Secretary Yoshihide Suga told reporters that the package will include steps to promote investment for growth through aggressive use of fiscal investment and loan programmes.
The government will compile the package as soon as possible, though the size of spending will depend on proposals to be made by various ministries, Economy Minister Yasutoshi Nishimura told a news conference after a regular cabinet meeting.
· Japan’s core machinery orders likely rose for the first time in three months in September, a Reuters poll showed on Friday, but a strong recovery is considered unlikely in the near term given sluggish global growth.
Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine month, likely grew 0.9% in September from the previous month, the poll of 17 economists found.
They fell 2.4% in August and 6.6% in July.
From a year earlier, core orders, which exclude those for ships and electric utilities, were seen rising 7.9% in September following a 14.5% drop in August.
· A student at a Hong Kong university who fell during protests at the weekend died on Friday, the first student death in months of anti-government demonstrations in the Chinese-ruled city that is likely to be a trigger for fresh unrest.
Chow Tsz-lok, 22, an undergraduate student at the Hong Kong University of Science and Technology, died of injuries sustained early on Monday. The circumstances of how he was injured were unclear but authorities said he was believed to have fallen from the third to the second floor in a parking lot when police dispersed crowds in a district east of the Kowloon peninsula.
· The Chinese commerce ministry said on Thursday that the two countries had agreed to cancel the tariffs in phases, which was confirmed by a U.S. official, who spoke on condition of anonymity.
Although the plan appears to have met opposition from some advisers to U.S. President Donald Trump and there is no clarity on when and where the deal will be signed, investors have so far bet that a deal will come through in the end.
· President Donald Trump has formally chosen the Energy Department's No. 2 official to replace Secretary Rick Perry.
Trump had been saying he planned to elevate Dan Brouillette, a former George W. Bush administration official, to the post. The promotion, which was announced by the White House on Thursday, had been anticipated by many in Washington energy circles.
Brouillette previously worked at the agency as an assistant secretary for congressional and intergovernmental affairs under Bush, and as staff director for the House Energy and Commerce Committee, where he played a role in crafting energy legislation. He also was a senior executive in the policy office of Ford Motor Co. and financial services provider United Services Automobile Association.
· Trade wars and softer growth are unlikely to dissuade global investors from diving into the world’s second-largest economy as they seek better returns, participants in the Reuters Global Investment Outlook 2020 Summit said this week.
Although economic growth in China has slowed to its weakest pace in nearly 30 years, and recent bond market ructions have pointed to uncertainty over the outlook for policy easing, the country still promises opportunity in a world of negative interest rates.
“China is one of the few places investors can generate decent returns,” said Richard Pan, the head of international business at China Asset Management Co (ChinaAMC).
Richard Bernstein, chief executive of Richard Bernstein Advisors LLC and a former Merrill Lynch & Co chief investment strategist, agreed, noting that China’s slowdown is belied by “accelerating leading indicators.”
“Because of what’s happening in trade, the Chinese government has injected massive amounts of monetary and fiscal stimulus into the economy. To say it’s not going to work is amazingly bearish,” he said.
· Brexit has proved the most divisive issue in the U.K. for the public and politicians alike, and the vote will again highlight that split between pro-Brexit and Remain voters.
On the whole, the Conservative Party and the Brexit Party attract "Leave" voters, whereas the Liberal Democrats and the Scottish National Party (SNP) are staunchly Remain parties.
The main opposition Labour party has been accused of sending mixed messages over its position on Brexit but it's campaigning from the position that it wants a second referendum.
· Brent crude, the global benchmark, was down 16 cents, or 0.3%, at $62.13 a barrel by 0259 GMT, after gaining 0.9% in the previous session.
U.S. West Texas Intermediate (WTI) crude was down 23 cents, or 0.4%, at $56.92 a barrel. The contract rose 1.4% on Thursday.
The trade war between the world’s two biggest economies has slowed economic growth around the world and prompted analysts to lower forecasts for oil demand, raising concerns that a supply glut could develop in 2020.
On Thursday, the Chinese commerce ministry said the two countries have agreed in the past two weeks to cancel trade tariffs in different phases, without giving a timeline.
Reference: Reuters, CNBC, FXStreet
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