The US$ is mildly firmer at the start of Wednesday Asian trade, with the DXY bouncing from a nearly three-month low in the previous session as US yields trade slightly higher (US10Y;2.71%) despite the growing expectations of a pause in the US rate hike cycle. The dollar was also assisted on Tuesday by the news that the US and China plan to extend trade talks into Wednesday, not on the original schedule, but increasing hope that the two nations could resolve their trade differences before the March 1 deadline. The main mover of the Tuesday session was Cable, which came under pressure as traders cut positions ahead of what is expected to be a volatile week, as British lawmakers debate Prime Minister Theresa May’s Brexit withdrawal agreement, and comes at the end of the day that has seen the UK Government defeated in another Brexit vote.
Elsewhere it has been mostly rather quiet, with the main interest being in WTI, which again approached 50pb, +2.5% on the day. This was partly due to another POTUS Twitter message saying that trade talks with China are going very well, prompting traders to buy WTI on hopes of an increase in demand. After an early wobble, US stocks are also higher on the US/China news, ending the day up by around 0.8/1.0%. The metals are a touch lower on the back of the slightly firmer US$.
Wednesday will kick off with the NZ Building Permits and the Australian AIG Performance of Services Index, although that aside, Asia will have an empty calendar apart from a speech in a national address at around 1.00pm AET from Donald Trump, which will keep traders on their toes. He will talk about the funding of the Mexican border wall, but is not he is not expected to declare a national emergency over the Government shutdown, and it should have minimal market implications. Europe will see the German Trade Balance and Current Account for November, while the EU Unemployment and the UK NIESR along with the Swiss CPI are also due for release. The US will have the FOMC Minutes to contend with. Generally, these would garner top billing in traders focus, although following on from Jerome Powell’s recent comments it would seem that the December FOMC meeting minutes will be rather outdated. His message was clear in his indication that future rate hikes will not materialise as quickly as previously anticipated, so the price action following the release of the minutes should be reasonably subdued.
Note that we have some important US & China economic data as we head towards the weekend. The China CPI/PPI and New Loans are due on Thursday, while the US CPI, is due on Friday.
Economic data highlights will include:
Wed: NZ Commodity Prices, Building Permits, Australian AIG Performance of Services Index, Donald Trump Speech, German Trade Balance, Current Account, Swiss CPI, EU Unemployment, UK NIESR GDP Estimate, BOE Governor, Mark Carney Speech, BOC Interest Rate Decision, EIA Crude Oil Stocks Weekly Change, Fed Speeches; Rosengren, Bostic, Evans FOMC Minutes
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