The US dollar is mixed on Monday after reports over the weekend pointed to the US and China being close to a trade agreement. The NZD and AUD rose along with the JPY, but uncertainty over Brexit took its toll on the EUR and GBP against the greenback.
The week will be full of central bank action (or inaction), economic indicators and more updates on the US-China trade agreement and Brexit developments.
OIL – Crude Rises on Trade Hopes
Oil prices rose on Monday. West Texas Intermediate gained 1.20 percent and Brent 0.81 percent after the US-China trade negotiations appear to be close to bearing fruit. The two nations engaged in a tariff dispute that had a negative impact on global growth forecasts and hit energy demand going forward.
With the US and China ready to make a deal, crude demand will benefit, especially if OPEC+ remains committed to their agreement to limit production.
Output disruptions in Nigeria also took prices higher given the delicate balance between rising supply in the US and the efforts from OPEC and other major producers to stabilize prices.
Russia and Saudi Arabia, the architects of the output cut remain committed but there are growing concerns about how long members could keep complying with the deal that reduces their revenues.
GOLD – Risk On Takes its Toll on Yellow Metal
Gold fell 0.89 percent as investors sought higher yielding assets. The report that the US and China are close to finalizing a deal and mostly positive Brexit news reduced the appetite for the yellow metal as a safe haven.
If the trend of strong economic indicators in the US continues this week the Fed could restart its interest rate hike path, sooner rather than later putting downward pressure on gold.
The U.S. non-farm payrolls (NFP) will be the highlight of US economic indicators to be released this week, with special attention given to the gain in wages for signs of inflation.
Gold remains in a consolidation pattern as despite progress in the US-China talks there has not been any concrete details which the market is waiting on. Brexit remains on the radar as there has been a higher ceiling for positive news, but there is still a long way to go before there is clarity in the divorce between the UK and the EU.
STOCKS – Fed Could Restart Hike Path if Strong Indicators Validate Move
Trade optimism could only take the stock market so far. High level talks between the two largest economies have been ongoing and although they appear close to bearing fruit, the fact remains that the optimism has already been priced in. Details on the agreement will be needed to unlock gains as investors preferred government bonds until an official announcement dispels all doubts of the Us-China agreement.
The dollar remains bid as higher yields boosted the currency, but there is also the expectation that this week could be pivotal for the economy as various indicators will be released, the highlight being the U.S. non-farm payrolls (NFP) on Friday.
The Fed has paused its monetary policy tightening but it could still hike a couple of times in 2019 if strong indicators validate higher interest rates.