Markets Rebound from China Slowdown on Trade Hopes

FX – Dollar not slowing down despite holiday and ongoing partial shutdown

The US dollar is mixed against major pairs on Monday. The Martin Luther King holiday in the States did not slow down the dollar at the beginning of the week. Chinese data showed the second largest economy is losing momentum with only a 6.4 percent growth in the fourth quarter.

The Chinese indicators were partly offset by a growing optimism that a resolution to the US-China trade war is in the works along with an upcoming stimulus package in China to boost growth.

The negative effect of the ongoing trade dispute was once again evident as the International Monetary Fund (IMF) cut its growth forecast to 3.5 percent in 2019, down from 3.7 percent. The World Economic Forum in Davos will continue to deliver pro-trade headlines as leaders meet in Switzerland.

The British pound rose 0.14 percent to start the week as the reality of a dreaded no-deal exit seems further away. The GBP is not out of the woods yet as Prime Minister May’s best strategy is to seek more concessions from the EU, specially in such a divisive subject as the backstop.

A possibility presented itself as the Polish Foreign Minister was in favour of a 5 year backstop which while not ideal, would allow negotiations to move forward ahead of the impending March 29 deadline.

OIL – Energy Hit by China Slowdown But Trade Optimism Boosts Prices

Energy prices rose on Monday with WTI gaining 0.33 percent and Brent 0.19 percent. Oil prices were hit after China released its GDP data showing a clear slowdown. The Chinese economy is growing at a 6.4 percent pace, the lowest since the financial crisis.

Trade war concerns have reduced global growth expectations and with it comes a lower demand of energy. Crude reversed the losses in the aftermath of the announcement as there is growing optimism that China and the United States will scale back their trade dispute.

Chinese stimulus news also brought a positive to energy prices. The OPEC production limit agreement and lower rig counts in North America are keeping prices stable awaiting signs of progress in US-China negotiations.

GOLD – Yellow metal falls on thin North American volumes

Gold lost 0.23 percent on Monday. The yellow metal is on the back foot as slow growth in China could be the catalyst for the end of the trade war between China and the United States. Investors lost their appetite for the precious metal as a refuge during the Martin Luther King holiday.

Brexit headlines could spark demand for a safe haven as a there is no clear plan B in the divorce proceedings between the UK and the EU.

The Bank of Japan (BOJ) and the European Central Bank (ECB) are not expected to surprise markets as their respective economies are still struggling to gather momentum.