Market movers today
Today, the US-China trade top-level negotiations begin. The US prosecution of Huawei has added some uncertainty to the equation but we believe the US and China will still aim to keep this track separate from the trade talks. The negotiations are entering a crucial stage with more thorny issues coming up regarding technology transfer, intellectual property rights and China’s industrial policy. The issue of enforcement will also be on the table. We may enter a rockier phase of negotiations, which have been smooth so far. However, we still believe in a deal by the end of Q2 with a 75% probability.
Tonight it is time for the FOMC meeting. Recently, we have seen more dovish signals from the Fed supporting it being on hold for now and likely until the June meeting. From now on, Jerome Powell will hold a press conference after each meeting, but as the Fed has not updated its projections, we do not expect any new signals. That said, it will be interesting to see if a new stance on the balance sheet is forming given that the Wall Street Journal story on this was a key factor behind the dollar decline last Friday.
In the data calendar, we have US ADP employment figures and German January HICP data. In the Scandie markets, Swedish confidence numbers and Norwegian retail sales are in focus.
Selected market news
Asian equity markets are somewhat mixed this morning while S&P futures point to a higher opening after better-than-expected Apple earnings results yesterday, boosting tech stocks. US consumer confidence fell back to the weakest level since July 2017, as optimism soured during the US government shutdown.
Yesterday’s Brexit vote in the House of Commons set the scene for a renewed collision course with Brussels. Against our expectation, the Brady amendment (replacing the backstop with ‘alternative arrangement’s) passed while the Cooper amendment (requiring a vote on asking for an extension of Article 50 if no deal was reached by 26 February) failed. PM Theresa May now needs to go back to the EU27 leaders but they have been adamant in saying they will not renegotiate the Withdrawal Agreement. That said, the EU may be more willing to listen now that May has found a majority. As May has promised another similar vote on 14 February if no deal is found by 13 February, it means she has two and a half weeks to renegotiate the backstop, which seems unrealistic. Uncertainty remains high but overall, yesterday’s vote support our base case that May’s deal (or something very similar) will pass eventually (40% chance). The second most likely outcome is a second EU referendum (30%). For more details, see Brexit Monitor: May has two and half weeks to renegotiate the backstop , 30 January. EUR/GBP broke above 0.8750 on disappointment that the Cooper amendment was rejected, but as such, the vote has not changed much for the GBP outlook.
