Asian markets have been closing in positive territory as US and Chinese mid-level officials closed a three-day session in Beijing in good, progressing ways. Investors gained confidence as trade talks are expected to extend, with the advent of China Vice Premier Liu He in Washington in January.
Indeed, the de-escalation of trade tensions bodes well for the stock market, which is set for new weekly gains. Hong Kong Hang Seng (+3.18% year-to-date) is closing a sixth trading session in positive territory amid a confirmed pause of Fed interest-rate increases and a stronger Renminbi against dollar while US equities are set for a similar path, with currently 5 consecutive day gains. However, the prospects of a continued government shutdown, which could become the longest if maintained through the weekend and the risk of policy dispute between Republicans and Democrats in the scenario of a national emergency policy should weigh on US equities and have a negative impact on US data, closely monitored by market participants. US CPI data published today for the month of December are expected to slowdown, with headline y/y and m/m metrics given at 1.90% (prior: 2.20%) and -0.10% (prior: 0%).
The recent reaction in USD/CNY (-1.84% week-to-date) suggests that the currency pair is an interesting indicator to gauge the US – China trade situation. Currently trading at 6.7428, largely below today’s PBoC fixing rate of 6.7909, we expect the pair to continue its downward trend short-term.