- Trade-related developments hold sway over market sentiment
- Gloomy economic data highlights urgent need for US-China trade deal
- Dollar’s near-term performance dependent on US retail sales data
- Brent waiting to surge past $65/bbl provided “phase one” trade deal materialises
Most Asian equities and currencies are in the green after another record close for the S&P 500, as White House economic adviser Larry Kudlow teased markets saying that the US and China are “getting close” to a trade deal and that it’s “coming down to the short strokes”. Although investors have taken some risk off the table in recent days, the gains seen in safe haven assets appear to be contained for the time being. Gold’s latest climb was capped at $1475, US 10-year Treasury yields bounced off the 1.80% mark, while the Japanese Yen strengthened to 108.24 versus the US Dollar before giving up some of its advances.
While waiting for more details on the highly-anticipated “phase one” trade deal, investors were served with another round of downcast economic data out of the US, Europe, and Asia. The dismal figures are yet another reminder to markets about the importance of a US-China trade deal to the global economic outlook; that deal is essential to reviving hopes of a global economic recovery. After all, investors’ patience has its limits, and cracks had already begun to show in risk sentiment in recent days.
US retail sales print in focus as Dollar eases
The Dollar index has eased below the 98.20 mark, even as Fed chair Jerome Powell touted the merits of the US economy before Congress, describing it as a “star” performer. Powell’s comments came as
investors were fed with US economic data showing higher-than-expected producer prices and jobless claims.
Still, the broader narrative surrounding the world’s largest economy is one of its resilience, despite the ongoing slowdown. A healthy jobs market that’s supportive of domestic consumption, amid subdued inflation, suggests that the Fed is likely to keep US interest rates at current levels for the foreseeable future. Indeed, the markets now see a 41% chance of no change in rates through December 2020. With that context in mind, todays’ October US retail sales figures will serve as an important barometer on the health of the US consumer, where anything short of the expected rebound from September’s surprise contraction could deflate the Dollar further.
Brent reverses decline on trade optimism
Oil prices are reversing some of their recent losses, as traders continue to pin their hopes on a US-China trade deal being sealed by year-end. Rising US stockpiles, encouraged by record shale output, suggest that the world will see excess Oil supplies going into 2020, with such prospects having dampened Oil prices. Even the longer-term outlook doesn’t bode well for Oil bulls, with the IEA recently predicting that global Oil demand will peak by 2030.
Still, over the near-term, Oil prices are compressing trading in a tight range whilst waiting for details relating to the “phase one” trade deal. As a finalised agreement becomes likelier, Brent futures are expected to be set on a path above $65/bbl.
