- Fresh reasons needed to send riskier assetshigher
- DXY may drop back below 98.0 if US data disappoints
- Brent futures unlikely to breach $70/bbl until trade deal becomes official
Asian stocks and currencies are mixed, even though US equities notched new record highs following President Donald Trump’s latest assessment that the US and China are in the “final throes” of a trade deal.Gold is compressing around the $1460 level, USDJPY has strengthened above the 109.0 psychological mark, while 10-year US Treasury yields trade within the recent 1.70-1.80 range around the 100-day Moving Average.
The upward momentum for riskier assets is in danger of petering out, with investors perhaps needingclear signs of progressbeyond mere snippets of positive spin regarding the potential US-China trade truce. Markets can only ignore the dismal economic data for so long, with the overnight release of China’s October industrial profits falling 9.9% drawing attention to the strains faced by the world economy.
December 15 now acts as the next marker in this protracted saga, with investors still speculating if the trade accord can be sealed before President Trump has to decide whether to push on with his tariff threat on a further $160 billion worth of Chinese goods. We note that many economists believe this move will hurt the US economy more than previous tariff increases.
Dollar resilience at risk if US consumers fail to deliver
The Dollar Index (DXY) has remained steady so far this weekas it approaches near-term resistance around 98.45, with most G10 currencies now slightly weaker against the Greenback. Investors have bought into Fed chair Jerome Powell’s recent messaging that the central bank’s monetary policy settings remain appropriate at this point in time, given that Fed funds futures indicate US interest rates remaining unchanged through the first half of 2020. With the Fed expected to stand pat on interest rates, barring a “material’ change in the US economic outlook, this leaves the market hanging on the US-China trade deal in terms of guiding the Dollar’s near-term performance.
Still, today’s US GDP revision and consumer spending figureswill be of some focus, amid a backdrop of slowing global growth.Investors will want to know how much US consumers can still be relied on to keep the world’s largest economy chugging along, considering that consumer confidence has declined every month since July. Core durable goods orders for October will give also more insight into the state of investment growth. Should Wednesday’s economic releases show larger cracks appearing in the US economy, that could prompt sellers to push the DXY below the 98.0 psychological level.
Oil gains capped until US and China put pen to paper
Oil bulls are riding the latest wave of optimism that the US and China can eventually seal a “phase one” trade accord. However, until the deal is officially signed, Brent’s upside is expected to becapped at $70/bbl, as fatigue starts setting in among investors who are being made to wait longer than initially expected. As long as the US and China keep communication lines open, Oil prices will be prevented from falling drastically lower from current levels.
