USD/JPY has edged lower on Tuesday, erasing most of the gains made on Monday. In the North American session, the pair is trading at 110.80, down 0.23% on the day. On the release front, BoJ Core CPI edged up to 0.5%, just shy of the estimate of 0.6%. In the U.S., construction numbers were mixed. CB Consumer Confidence sparkled, with a score of 131.4, well above expectations. As well, the Richmond Manufacturing Index jumped to 16 points, a 5-month gain. All eyes are on Fed Chair Jerome Powell, who is testifying before the Senate Banking Committee. On Wednesday, Powell speaks before the House Financial Services Committee.
Investor enthusiasm over the U.S-China trade talks has cooled on Wednesday. President Trump had said that he would raise tariffs on Chinese goods from 10% to 25% on March 1, but hinted last week that the deadline was flexible. On Sunday, Trump tweeted that he was waiving the deadline, since the parties had made “significant progress”. Trump added that he was open to meeting with Chinese President Xi, if there was further progress. Although there is optimism that the sides will reach an agreement, there is some anxiety over the lack of any details about what a possible deal will look like. The U.S. has presented a wide range of demands, but it’s unclear what the Chinese will agree to and how any agreement will be enforced. Will the current set of tariffs be completely removed if a deal is reached? If not, market enthusiasm could evaporate, as the tariffs have caused enormous turmoil in international trade and dampened global growth.
The Federal Reserve will be back in the spotlight this week, as Fed Chair Jerome Powell testifies before congressional committees on Tuesday and Wednesday. The Fed has been decidedly dovish early in 2019, in sharp contrast to 2018, when the Fed raised rates four times in order to keep the red-hot U.S. economy from overheating. However, the global trade war has taken a bite out of global growth, and the U.S. economy is unlikely to repeat last year’s performance. The markets will be listening closely for hints regarding future interest rate policy.
