Prepared by Jeff Halley, Senior Market Analyst
Trump wins best trade Oscar with early morning Tweet
Asia’s markets are poised for a positive open today as President Trump tweeted he is extending the US-China 1 March trade talk deadline this morning. Despite his very public spat with chief trade negotiator Robert Lighthizer over MOU agreements, the President now seems satisfied that sufficient headway has been made by both sides over the weekend to justify an extension. It would appear the US has successfully played hardball during the talks and a trade deal – should it emerge – could fundamentally reset how China does business with the world.
I can almost hear the collective sigh of relief in the region this morning because the Asia Pacific economies are so closely tied to the fortunes of China now that ripples are felt far and wide. In light of President Trump’s response, the regional FX and stock markets could have a very positive day, led by Chinese equities, which enjoyed their best run in nearly a year last week.
As Chinese negotiators head back to Beijing, President Trump will jump onto Air Force One seeking a follow on-performance in Vietnam at the two-day denuclearisation summit with North Korean leader Kim Jong-un. The impact this summit has on the markets should be negligible as the trade talk afterglow will be the only game in town. That said, with two such gregarious personalities at the helm, you can never say never when it comes to potential news headlines.
Federal Reserve Governor Jerome Powell will be up front and centre this week, undertaking a plethora of speaking engagements as well as testifying on Capitol Hill on Tuesday and Wednesday. In addition, several of his Federal Reserve colleagues will also be speaking, so the street will be looking for soothing comments about the future size of the balance sheet – the bigger the better – and insights into future rate hikes.
In terms of data, Friday’s US Personal Consumption figures look to be a highlight this week. This is being closely watched by the Fed with the market expecting 1.90%. China’s official and Caixin Manufacturing PMIs will also be released on Thursday and Friday respectively. Given the almost supernatural ability official China data has in terms of hitting forecasts, the Caixin should be more closely watched.
In other news, UK Prime Minister Theresa May has delayed Parliament’s Brexit vote by two weeks to mid-March. Noise from London and Brussels seems to point increasingly to an extension of Article 50 in order to avoid a hard Brexit on 29 March. The British are talking two months, the Europeans two years. My heart says the former, my head the latter. I am not sure the British people (or indeed the world) can face another two years of Brexit.
Regional currencies could enjoy a positive day following Trump’s trade tweet. The talks have hung like a dark cloud over emerging Asia despite the fact stocks markets have bounced aggressively since January. Questions still linger about just how China will “manage” its currency or even if will agree to, but this should be lost in the post-trade-talk afterglow this week.
The Aussie dollar (AUD) has washed off the coal dust as China clarified the difference between blocking coal imports from Australia, and delaying ship unloading to assess its “environmental” impact. The AUD had already made back much of its 1% losses last week, rising 0.56% on Friday to 0.7150. With such a high beta to China, the Aussie dollar and its Kiwi cousin are poised to start the week from strong gains.
The British Pound (GBP) has held onto much of last week’s gains, buoyed by talk of an Article 50 extension. The theme should continue initially after the weekend press suggested a two-year extension could be on the table. Beware headlines and reality however as being long over 1.3100 in recent times has proved a hazardous strategy.
Given US-China trade talk progress and Wall Street’s positive finish on Friday, regional bourses should be firmly in the green as this week starts. China could lead the way, showing signs of life last week after months of being anchored to the sea floor, having been battered by Typhoon Tariff.
Gold could come under pressure today as investors move from safe havens to higher-risk assets. The technical picture, however, remains resilient and gold should still find friends on dips ahead of the Trump Kim summit mid-week. The US dollar could suffer the same fate as risk-seeking traders look to emerging markets, which could be supportive for gold as well.
Oil has enjoyed a bright start already, with Brent and WTI both jumping USD0.50. The trade-talk news will be energy nirvana for oil because the receding tariff threat will be interpreted as very positive for global consumption going forward.