The US-China trade talks in Beijing wrapped up without a deal on Friday and now move to Washington this week as the 1 March deadline looms. Taking the view that no news is good news, the stock markets remain optimistic, with the Dow Jones and S&P up 1.70% and 1.0% respectively, as the sparkling post-Fed rally continues. The FX and bond markets were more sanguine as the dollar gave back a small proportion of its recent gains and bond yields rose slightly across the curve.
What is becoming clear however, is the US is not prepared to settle for easy wins on the trade deficit by simply agreeing to China buying more planes, beans and automobiles etc. If the US government had taken this approach, we would likely have already seen a completed deal. Instead, they are seeking structural changes in the way China does business with regards to subsidies, trade barriers, industrial espionage and forced technology transfers. The US is in its strongest negotiating position with China for years, with its economy pumping along as China’s slows down. As such, the US seems determined not to squander that advantage with an easy win.
The US markets will be closed for President’s Day today, but that shouldn’t stop the regional markets from following their lead from Friday. In Asia, today’s focus will be the release of Thailand’s GDP this morning followed by Singapore’s Budget 2019 this afternoon. The markets are forecasting the Thai Q4 GDP data will be up by a glowing 3.80% year-on-year and an equally impressive 4.20% full-year. This should knock pre-election shenanigans off the front pages – for now – and possibly see the baht’s recent rally continue.
Singapore’s budget may see a lower deficit due to more efficient tax collection, and we could see a few goodies handed out ahead of a possible election later this year. We expect no new tax increases and the emphasis will likely continue to focus on health care for Singapore’s rapidly ageing population along with extensive infrastructure and smart nation spending.
Internationally, attention will focus on the trade talks with this week’s data highlight being the FOMC Minutes mid-week.
The energy markets may outperform as Reuters reported Gazprombank has frozen the accounts for Venezuelan state oil company PDVSA.
FX
The US dollar gave back some of its recent gains on Friday as the Beijing trade talks closed without a deal and end-of-week profit taking set in. The focus will be on regional currencies today with petro-aligned currencies such as MYR and IDR likely to benefit, possibly also the Thai baht. A strong Thai GDP could see the baht rally towards the 31.10 area against the dollar.
Trading will likely be muted with the US on holiday, and the dollar could likely continue its short-term weakness against the major currencies. This weakness may be temporary as the economy continues to fire on all cylinders.
Stock markets
Regional bourses will likely follow Wall Street’s lead and trade higher today with Friday’s oil rally perhaps giving an extra boost to Malaysia and Indonesia’s markets.
The trade talks are a distant cloud today, but that cloud may grow closer and much darker if there is no progress this week. Today’s anticipated rallies could then run out of steam in the days ahead.
Gold
Gold rose ten dollars to 1,321.00 an ounce on Friday due to risk-aversion buying and a falling dollar after the trade talks broke without a result. Gold has now traced out multiple daily lows at 1,301.00, which represents strong support at present. Gold bullish technical consolidation continues therefore with the charts suggesting the yellow metal is gathering its strength for an attack on the 1,330.00 resistance region.
Oil
Oil rocketed higher on Friday ending a spectacular week for both Brent and WTI. Brent rose 2.60% to USD66.20 a barrel, finishing the week 6.00% higher. Meanwhile, WTI rose 2.20% to USD55.80 a barrel, concluding a 5% rally over the week. Tighter OPEC+ supplies, mainly from Saudi Arabia, and Venezuela sanctions drove the black gold higher.
This weekend, Reuters reported that Russia’s Gazprombank has frozen PDVSA’s accounts, following news that Lukoil has also suspended oil swaps with PDVSA. This tightening noose should see bullish sentiment continue in oil with both contracts jumping 0.50% in early Asian trading.
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