· The dollar nursed its steepest losses in weeks on Thursday, as the Federal Reserve’s forecast that it would hold rates through 2020 sparked an unwinding of long positions in the greenback.
Investors were also on edge ahead of Sunday’s deadline for a new round of U.S. tariffs on China, and a European Central Bank (ECB) meeting and the UK election later on Thursday.
The dollar hit its lowest in more than a month against the euro EUR= at $1.1143 and stayed there, while sterling GBP=D3 drifted higher ahead of the election. Against a basket of currencies .DXY the dollar sat at a four-month low of 97.038. The Japanese yen JPY= held on to overnight gains at 108.55.
“The Fed has basically given the market confirmation that the three rate cuts we’ve had recently are not going to be reversed any time in the next year,” said Stuart Oakley, global head of flow FX at Nomura in Singapore.
“Dollar rates are lower, and they’re going to stay that way for a while,” he said.
· U.S. President Donald Trump is likely to meet with his top trade and economic advisers on Thursday to discuss whether to impose planned Dec. 15 tariffs on nearly $160 billion in Chinese consumer goods, according to two sources familiar with the plans.
The meeting is expected to involve U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and White House advisers Larry Kudlow and Peter Navarro, the sources said.
One person briefed on the situation told Reuters on Tuesday a decision to move ahead with the Dec. 15 tariffs could scuttle talks to end the 17-month-long trade war between the world's two largest economies for the remainder of Trump's term.
· JPMorgan Chase & Co.’s Jamie Dimon said he expects to see a phase-one trade deal between the world’s two largest economies, but warned that an additional wave of tariffs from the Trump administration would hit markets and U.S. growth.
The White House is expected to increase levies on $160 billion of imported Chinese consumer items including toys and smartphones on Sunday, which the JPMorgan CEO said would further weigh on gross domestic product. He spoke at an event in Washington for the Business Roundtable, a Washington trade group that represents the CEOs of the largest U.S. companies.
“I think there will be a phase-one deal, personally,” Dimon told reporters. He also warned that if that did not happen and the tariffs went ahead Dec. 15, “it will be a negative in the marketplace and small-negative” for U.S. and global growth. “People expect this phase-one deal to take place and tariffs not to go up.”
· China says in close communication with U.S. on trade as fresh tariffs loom
China and the United States are in close communication on trade, its commerce ministry said on Thursday, declining to comment on possible retaliatory steps if Washington imposes more tariffs on Chinese goods this weekend.
The United States is due to impose tariffs on almost $160 billion of Chinese imports such as video game consoles, computer monitors and toys on Sunday.
U.S. President Donald Trump is expected to meet top trade advisers on Thursday to discuss the move, sources told Reuters previously.
· Donald Trump has a lower chance of winning the 2020 presidential election than in 2016, this according to Peter Schiff, CEO of Euro Pacific Capital.
“I don’t think [Trump] is going to get re-elected. It’s not impossible. I thought it was far more likely that he was elected originally, but I don’t think his prospects are as great now as they were back then, although, the conventional wisdom is the opposite. Most people thought he had no chance of winning next time and he think he can’t lose this time because they think we have this great economy,” he said.
Schiff said that regardless of who the Democrats nominate, if the economy goes into a recession by the elections, Trump will lose.
On monetary policy, the Fed will cut all the way to 0% if needed, contrary to what markets are pricing in, he said.
· Every nuance counts and even semantics can move markets. New President Christine Lagarde will chair her first European Central Bank (ECB) meeting and the subsequent press conference on Thursday and all eyes and ears will be on her.
The big question is whether there will be any hints on future policy decisions.
“Thursdays press conference will be a watershed for financial markets. More realistically, the policies already announced and set on auto-pilot by (ex-chief Mario) Draghi, are unlikely to change, at least immediately,” said Lorenzo Codogno in a research note.
“However, any hint on the future direction of policies would be hugely important, and potentially highly relevant for financial markets.”
The new ECB president has announced a swift policy review, the first the euro zone central bank has performed since 2003. She might also see her primary task as reuniting the ECB’s Governing Council, healing the wounds from the controversial policy decision to reinstate quantitative easing (QE) in September. One indication for this interpretation is that in recent speeches she has placed more emphasis on the negative side effects of the current policy stance — more so than what Draghi would have ever done.
· “Maybe the most important figure in the new projections will be the 2022 inflation forecast which represents the ECB’s ‘medium-term’ over which it tries to steer inflation towards its target,” said Dirk Schumacher, an ECB watcher with Natixis, said in a note.
“Any number which doesn’t show a further increase in inflation during 2022, when compared to 2021, would be usually interpreted as dovish, signaling a low hurdle for further policy easing going forward.”
· ECB Preview: Major Banks expectations from December meeting
TD Securities
“Today's ECB meeting is the first with Christine Lagarde as President. We look for rates to remain unchanged, and for macro forecasts to show GDP growth downgrades for 2020 and 2021, while HICP is upgraded in 2020 on higher oil futures, and a first 2022 estimate of 1.7%.”
Danske Bank
“The December ECB meeting, which will be Lagarde's first meeting as chair, is set to focus on the strategic review. With forward guidance and new QE purchases already set for the coming months, no change in monetary policy is expected for the near future.”
ING
“In our view, this week’s ECB meeting will not bring any short-term changes to monetary policy but should clearly help to better understand the ECB under the new president.”
Nordea Markets
“We continue to expect a March easing package based on more disappointments from both inflation and growth in the coming months.”
BBVA
According to the Research Department at BBVA, the central bank is likely to back the minutes from the October meeting. They do not expect significant changes in the economic forecasts.
· Investors have so far been pricing in an outright majority for Prime Minister Boris Johnson’s Conservative Party.
The assumption that such an outcome would end Brexit uncertainty and rule out Labour's radical agenda has boosted the pound GBP= to a seven-month high against the U.S. dollar and lifted London's mid-cap stocks .FTMC to levels unseen for over a year during most of the campaign.
A closely watched forecast released on Tuesday evening has however sent jitters across the markets, denting sterling and domestic stocks. It showed the race tightened and that Johnson was likely to win only a modest majority.
“At the moment, I still think Conservative majority is the most likely option and despite the reduction in sterling, that does still seem to be the option that markets are still pricing in,” said Rachel Winter, associate investment director at Killik & Co.
“But having said that, I don’t think anyone will be surprised to see a hung parliament.”
· Hong Kong’s role in global finance is intact, with little evidence to suggest recent protests and social unrest in the city have adversely impacted that role, global credit rating agency Fitch Ratings said on Thursday.
However, the rating agency added that the prolonged protests are undermining perceptions that Hong Kong is a stable international business hub and that a weaker view of its governance could impact its credit rating directly.
· Japan saw another decline in machinery orders in October in a fresh sign business spending, one of the few points of strength in the world’s third-largest economy, is stalling as slumping exports bruise investment appetite.
Core machinery orders fell 6.0% in October from the previous month, down for a fourth straight month and dashing expectations for a 0.9% increase in a Reuters poll, data showed on Thursday.
The decline marked the longest period of month-on-month contraction since a similar stretch to January 2009 and throws up a challenge for policymakers counting on solid business spending to support demand amid a global slowdown.
Reference: Reuters, CNBC, FX Street
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