Spot values at a glance:
Most Asian indices gained, following news of a deal among American lawmakers to avert another federal government shutdown. The US dollar held gains to trade near its strongest since January, while the yuan stabilized onshore after Monday’s drop, with US-China trade talks looming.
Trump to Meet Xi ‘Very Soon’:
The Trump administration said the US president still wants to meet China’s Xi Jinping in an effort to end the trade war, a sign of optimism as negotiators from the world’s two-biggest economies start their latest round of talks this week. “He wants to meet with President Xi very soon,” White House adviser Kellyanne Conway said Monday on Fox News. “This president wants a deal. He wants it to be fair to Americans and American workers and American interests.”
Uncertainty whether the leaders will meet to finalize an agreement has stoked concerns that negotiations are faltering as the March 1 deadline approaches. If there’s no deal by then, President Donald Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.
Negotiators from the two countries are meeting this week in Beijing, with US officials pressing China to commit to deeper reforms to a state-driven economic model that they say hurts American companies. Mid-level officials began discussions Monday in preparation for two days of talks starting Thursday involving US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He.
Inflation Data Up Next:
The world economy is set to get fresh insight into whether inflation is turning sluggish again as the US and China publish price data that’s set to endorse the decision of central banks to steer away from tighter monetary policy.
A measure of US core consumer inflation likely eased to 2.1% on an annual basis, helping to justify the Federal Reserve’s pause in its interest-rate hike cycle, according to economists surveyed ahead of a report due Wednesday. China’s factory inflation reading on Friday will probably show a mere 0.3% increase from a year earlier, an ominous sign given the link to export prices.
Having already turned dovish in recent weeks, central banks will likely view the data as reason to keep monetary policy looser than perhaps they envisaged at the end of last year. JPMorgan Chase & Co. economists predict average worldwide inflation will slow to less than 2% this quarter from 2.8% in October.
A combination of cyclical and structural factors are keeping a lid on prices. The IMF predicts global growth this year will be the slowest since 2016, while food and energy costs have also dipped.
Lunar New Year Spending Slows:
The downward pressure on China’s consumption persisted over the Lunar New Year holiday. People in China spent 1.01 trillion yuan at restaurants, shopping malls and online outlets over the week-long holiday, according to the Ministry of Commerce. That was 8.5% higher than during last year’s festive period, but the slowest increase since at least 2011.
The slowdown in spending underscores the weakness in Chinese consumption, which saw last year’s rise as the lowest since 2002. Weaker growth, the trade war with the US and a crackdown on debt have all undercut demand, with auto purchases falling for the first time in almost three decades in 2018.
Spending at tourist venues rose 8.2% to 513.9 billion yuan, the state broadcaster CCTV said, citing data from the Ministry of Commerce, slower than the 12.6% rise last year. Domestic box office revenue was 1% higher than in 2018, according to a report in The Paper, which cited statistics from a cinema ticketing service platform of Alibaba Pictures.
Shutdown 2.0 Averted?
House and Senate negotiators said they have reached an “agreement in principle” on border security funding that would avert a second government shutdown on Friday. Senator Richard Shelby, an Alabama Republican, and Representative Nita Lowey, a New York Democrat, made the announcement at the Capitol on Monday night.
Leaders of both parties in the House and Senate resolved a last-minute snag on the number of immigration detention beds during a series of meeting Monday afternoon and evening before signing off on the agreement.
Yet President Donald Trump remains a wild card. The White House had given signals that he would go along with the lower spending levels. But the president has in the past reversed course without warning, as he did last December in blowing up a previous spending accord and triggering a 35-day shutdown. Shelby said that he hoped the White House would approve the agreement the House and Senate negotiators had reached.
May Bids for More Time to Get Brexit Deal:
UK Prime Minister Theresa May will address lawmakers in the House of Commons on Tuesday as she seeks more time to renegotiate her Brexit deal with the European Union. Four weeks after she saw her agreement with the bloc defeated by the biggest margin in modern Parliamentary history, May met with MPs from across the political divide Monday as she continued to seek a deal that can win a majority in the House of Commons.
May, who is trying to renegotiate the controversial backstop intended to ensure the Irish border remains open after Brexit, will update Parliament on the progress of talks with the EU and outline a motion she’ll put before MPs for debate on Thursday, her office said.
After buying time 2 weeks ago, when she won a vote giving her a mandate to reopen talks with the bloc, the embattled premier is expected to ask Parliament to restate its demand to remove the backstop from the Withdrawal Agreement and to promise a further vote if she hasn’t brought a renegotiated deal back to Parliament by Feb. 27.
With just over 6 weeks before Britain’s scheduled exit day on March 29, the move is intended to reassure members from across the House of Commons who are concerned that May is deliberately running down the clock and risking a potentially disastrous no-deal divorce.
USDSGD edged higher today after recovering back above the key 1.3500 handle last week. Some consolidation is expected for the pair over the near term; 1.3500 should continue to provide support, while to the upside the 200-day moving average is a likely resistance.
AUDUSD continues to linger near 1-month lows, after failing to rise above its 200-day moving average last week. Last week’s sharp decline was triggered by the RBA’s dovish shift. Support is expected to come in above the 0.7000 psychological level. Against the backdrop of slightly oversold conditions, a strong rally in iron ore prices in the Chinese exchange today provided a minor boost to AUD. From a longer-term perspective, AUDUSD’s downtrend over the past year remains strongly intact.
USDCAD struggled to hold above its 1.3300 handle following its strong 1.3% rise last week. The pair refrained to extend Friday’s gains as China’s return to markets after a weeklong holiday was welcomed by challenges at the US-China trade talks and speculations of weaker growth. Additionally, soft crude prices also negatively affected the Canadian dollar. The 50-day moving average, currently at 1.3356 remains a short-term target for the pair. Expect USDCAD to test it again this week. A break above it should pave the way for a move back to 1.3500 territory.
USDCNH gained to its highest in 2 weeks earlier today, peaking above its 6.8000 handle before retreating back 0.14% to intraday lows, amid a resurgent US dollar. The key resistance lies at 6.8260.
USDJPY rose to 2019 high earlier, extending its recent gain above 110. Bullish momentum, however, is expected to be curbed after the BOJ today cut purchases of long-term bonds. The central bank has decided to buy 180 billion yen worth of Japanese government bonds maturing in 10 to 25 years, down 20 billion yen from the previous operation. A sustained break above 110 is likely to trigger a move higher towards the 200-day moving average at 111.26.
GBPUSD continues to be pressured amid negative UK data as well Brexit fears. UK industrial and manufacturing production numbers last night missed estimates. 1.2800 is expected to provide some support relief, though continued Brexit uncertainty is almost certain to drive the pair past below it.