· The British pound slipped early on Wednesday after a poll showed a narrowing lead for Prime Minister Boris Johnson’s Conservative Party in an election scheduled for later in the week, while U.S. dollar movement looked to the Federal Reserve’s policy meeting.
Investors were also focusing on whether U.S. President Donald Trump will impose tariffs on nearly $160 billion worth of Chinese consumer goods from Dec. 15.
Investors have generally believed the U.S. tariffs would be at least postponed to salvage a trade deal with China.
“It is calmness before storm. Markets have long believed the additional tariffs will be avoided,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
Sterling fell to as low as $1.3107 and last stood down 0.1% at $1.3140, giving back about a cent after hitting an 8 1/2-month high of $1.3215 on Tuesday.
The dollar was traded at 108.74 yen, flat in early Asia after a gain of 0.15% the previous day.
Economic uncertainty stemming from the U.S.-China trade war has prompted the U.S. Federal Reserve to cut interest rates three times this year. It is almost unanimously expected to leave interest rates unchanged on Wednesday.
Fed Policymakers’ updated projections for the U.S. economy and interest rates will be the main focus to assess whether they think the rate cuts so far are enough to keep the economy rolling for another year.
The euro stood at $1.1094, having risen 0.23% on Tuesday after the ZEW research institute’s monthly gauge on economic morale among German investors showed improvement far beyond that of December.
The index rose to near a two-year high of 10.7 from -2.1 a month earlier, exceeding even the highest forecast in a Reuters poll of economists, aided by an unexpected rise in October exports boosting hope for an upturn in Europe’s biggest economy.
The euro’s strength helped to push down the dollar index to 97.496, not far from a one-month low of 97.350 touched on Friday.
· U.S. government debt prices were lower Wednesday morning, as investors await updates from the Federal Reserve’s policy meeting.
At 02:20 a.m. ET, the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 1.8312%, while the yield on the 30-year Treasury bond was also higher at around 2.2546%.
Market focus remains largely attuned to global trade developments, amid conflicting signals about whether the U.S. will impose even more tariffs on Chinese goods from Sunday.
The Federal Reserve is expected to issue a statement on interest rates at 2:00 p.m. ET. A news conference by Fed Chair Jerome Powell will follow shortly thereafter.
The U.S. central bank is widely expected to leave interest rates unchanged on Wednesday, with investors likely to closely monitor any changes to the Fed’s 2% growth forecast for 2020.
On the data front, U.S. inflation data will be published at 8:30 a.m. ET. The Commerce Department’s latest quarterly services survey (QSS) and the Federal Budget for November will both be released slightly later in the session.
· Chinese officials expect President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition despite a series of missed deadlines, according to people familiar with the discussions.
The Trump administration has so far sent conflicting signals on their willingness to agree to a delay. Late Tuesday, White House Trade Adviser Peter Navarro said he had “no indication” that tariffs set to take effect on Dec. 15 on a list comprising some $160 billion of imports from China including consumer items like smart phones and toys won’t take effect.
That came a day after Agriculture Secretary Sonny Perdue said that he believed there will be “some backing away” from the new wave of levies. People familiar with the discussions say Trump was expected to meet with his trade team on Thursday as discussions continue over a potential delay.
The U.S. has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a 20-month trade war. Discussions now are focused on reducing those rates by as much as half as part of a phase one agreement that would relax tensions and pave the way for further talks.
· Federal Reserve Chair Jerome Powell has taken a glass-half-full view of the U.S. economy but the trouble may be that the glass has gotten smaller and has a few cracks.
Over the next week it risks losing a few drops as deadlines approach for the United States to impose new tariffs on China, British voters decide what has been called a “nightmare” election between far-left and far-right candidates, and other central banks take stock of what seems an increasingly turgid global economy.
The Federal Reserve meets this week and is likely to leave interest rates unchanged after cutting them three times this year. Policymakers on Wednesday will also provide updated projections for the U.S. economy and interest rates, their clearest statement yet of whether they think the rate cuts approved so far are enough to keep the economy rolling for another year.
In their last set of projections in September, policymakers at the median saw the U.S. economy growing 2% next year, roughly at trend, and officials have noted that markets that are sensitive to interest rates, such as housing and autos, have strengthened.
· Consumer inflation or specifically price stability is one of the Federal Reserve’s two Congressional mandates. As such it receives much notice and is an integral part of every FOMC statement.
The reference to inflation in the last FOMC statement where the governors cuts the fed funds rate for the third meeting in a row and then moved to a neutral policy could stand in for almost any statement for the past decade. “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.”
Many analysts, with good monetary supply logic, had expected higher inflation from the massive QE purchases. It never occurred. The demand component of inflation turned out to be far stronger than expected.
Had inflation accelerated the Fed would have been forced to choose between economic growth and price stability. There is small doubt that in the aftermath of the recession the central bank would have chosen growth.
· The uncertainty around the U.S.-China trade war creates value opportunities for investors, CNBC’s Jim Cramer said Tuesday.
“People are always asking me, ‘How do you play the trade talks?’” the “Mad Money” host said. “I always say the same thing: stop playing and start investing.”
But that does not mean investors should include in their strategy predictions about what President Donald Trump’s next move in the long-running trade dispute will be, Cramer said.
That is a functionally impossible task, Cramer said.
“Even his closest advisors might not know what he’ll do,” Cramer said. “He might not even know himself until the moment he tweets or announces his decision at an impromptu press conference.”
What investors should do instead, Cramer said, is stick closely to the facts on the ground for particular companies — not the news story of the day.
“You should stop trying to bet on the trade talks and start looking for the stocks of high-quality companies that are worth buying regardless of how things go with China,” Cramer said.
· The U.S. and China will probably announce some form of trade deal ahead of Sunday — when additional tariffs on Chinese goods are due to kick in — and that’s going to boost financial markets, say analysts.
There will be an “eleventh hour” announcement about a deal on Saturday night, says Kenny Polcari, senior market strategist at Slatestone Wealth.
“They’re going to come out and say ‘we’ve got a deal ... we’re working on tweaking, fine-tuning it. But, to show good faith, we’re not going to impose these tariffs.’ And then the markets will rally,” he told CNBC’s “Street Signs” on Wednesday.
· According to Robertson, even if there’s no phase-one deal by Sunday, both parties would probably indicate they’re in a holding state in terms of the trade deal.
“I think what you might see is something along the lines of: ‘We’re still negotiating, we’re in the final stretch, we’re waiting to put pen to paper, tariffs will go into place on the 15th, but we won’t collect any revenue on them for the next six months,’” Robertson told CNBC Wednesday.
“There’s a lot of ways that they can demonstrate that it’s on hold until the phase-one deal is signed,” he added.
· Analysts from DBS said in a note on Wednesday that negotiators from both countries “have moved away from a deadline for a Phase 1 trade deal.”
“US remains unwilling to meet China’s term to roll back existing tariffs in exchange for its purchases of US agricultural products. The final decision to delay tariffs rests with US President Donald Trump,” they wrote.
Meanwhile, delaying both trade talks and tariffs would keep the Chinese yuan stable — at between 7 and 7.10 against the dollar, DBS said. The yuan first sank past 7 to the dollar in more than a decade in August amid an escalation in the trade war.
· British Prime Minister Boris Johnson’s Conservative Party is on track for a 24-seat majority after Thursday’s general election, polling company Focaldata forecast on Tuesday, down sharply from its forecast last month of an 82-seat majority.
Focaldata predicted that the Conservatives would win 337 seats in the 650-seat parliament, followed by Labour on 235, the Scottish National Party with 41, and the Liberal Democrats with 14 based on its forecasting model and recent polling data.
· YouGov’s latest poll sees Mr Johnson’s party dramatically cut their lead in front of Labour by just nine points.
The Tories are forecast to win 339 seats out of 650 in the general election - down from 359 in the last poll but up from 317 in the 2017 general election.
This would still be the party's best performance since 1987.
The Labour Party is on track to lose 31 seats and end with a total of 231 - putting the party on track to see its worst performance since 1983.
The poll also predicts that the Liberal Democrats would outperform their 2017 showing by three seats securing 15, also predicting a gain of 6 seats for the SNP.
YouGov Political Research Manager Chris Curtis said: “Our latest and final poll shows that a small Conservative majority is likely, with the Tories taking 22 more seats than in 2017 and Labour losing 31.
· It's the time of year when London's bankers and traders wind down and prepare for holidays. Instead, many are cancelling leave and will work all night on Thursday as Britain votes in an unpredictable election that could convulse global markets.
Prime Minister Boris Johnson's ruling Conservative Party is running on a pledge to enact a swift split from the EU, while Jeremy Corbyn's main opposition Labour is promising another referendum on membership of the bloc.
"I think Brexit day is going to be a walk in the park compared to a Corbyn majority - and Brexit day was bad."
The pound plunged more than 10% in the immediate aftermath of Britain's vote to leave the European Union in June 2016, while $2 trillion was wiped off world markets.
While the prospect of a second Brexit referendum could be a positive for sterling, countering factors could be Corbyn's policies to nationalise parts of the economy, as well as further uncertainty as Brexit is delayed once more.
· Turkey will retaliate if the United States takes negative steps against it, Foreign Minister Mevlut Cavusoglu said on Wednesday when asked about the prospect of Washington imposing sanctions over Ankara’s purchase of Russian S-400 defense systems.
In an interview with Turkish broadcaster A Haber, Cavusoglu also said Turkey was open to alternatives to buying U.S. F-35 jets, including from Russia, after Ankara was suspended from the program over the S-400 purchase.
· Oil prices fell on Wednesday after industry data showed an unexpected build in crude inventory in the United States and as investors waited for news on whether a fresh round of U.S. tariffs on Chinese goods would take effect on Sunday.
Brent futures fell by 44 cents, or 0.7%, to $63.90 per barrel by 0342 GMT. U.S. West Texas Intermediate crude slipped by 33 cents, or 0.6%, to $58.91 a barrel, down from a more than two-month high reached on Tuesday.
rude inventories rose by 1.4 million barrels in the week to Dec. 6 to 447 million, while analysts were expecting a fall of 2.8 million barrels.
The weekly EIA report is due later on Wednesday.
U.S.-China trade tensions continue to cloud the outlook for demand, with a Dec. 15 deadline for the next round of U.S. tariffs on Chinese imports approaching fast.
Reference: Reuters, CNBC, NASDAQ,Bloomberg
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