· The dollar edged higher against the euro in holiday-thinned trading on Tuesday, ahead of the Christmas holiday, while the British pound looked set to snap a five-day streak of losses against the U.S. currency.
Against the dollar, the euro was 0.05% lower.
The dollar index, which measures the greenback against six major currencies, was up 0.06% at 97.715.
The dollar, up about 1.6% for the year as measured by the dollar index, has broadly benefited during bouts of risk aversion - because it is considered a safe-haven currency - and when markets have rallied, because the U.S. economy is outperforming other parts of the world.
However, a recent cooling of trade-related tensions between the United States and China, following an interim trade agreement earlier this month, has led investors to favor trade-sensitive currencies over the greenback.
China’s yuan was about flat on the day after Premier Li Keqiang said the government was considering more measures to lower corporate financing costs and hinted at “targeted” cuts in banks’ reserve requirement ratio. The offshore yuan last traded at 7.008.
Sterling, which has fallen against the dollar for five straight days, as its post-election rally floundered amid growing anxiety around the possibility of a hard and chaotic Brexit in the coming months, steadied on Tuesday.
Sterling was up 0.13% at $1.295. The pound, which had surged after Boris Johnson’s Conservative Party won a majority in the UK general election on Dec. 12, has given up all those gains and some more.
· US-China trade war improves AsPac exports outlook for 2020
The so-called Phase One trade deal agreed upon by US and China this month bodes well for trade outlook in the Asia Pacific region in 2020 and in the medium term, said IHS Markit.
IHS Markit noted that the US-China Phase One trade deal that has been agreed upon still needs to be fine-tuned and signed. Markets are rife with expectations that this will be done in early 2020.
IHS Markit said the phase one trade deal will boost the Asian manufacturing supply chain the over the medium term as an upturn in Chinese manufacturing to the US will rejuvenate the region’s manufacturing chain for intermediate goods and materials.
· Fed, ECB expected to leave rates alone...or maybe not
Analysts and economists look for both the Federal Reserve and European Central Bank to leave interest rates alone in 2020.
“We have the Fed keeping rates on hold for the foreseeable future,” said Andrew Hunter, senior U.S. economist with Capital Economics. “That’s partly because over the past couple of months, they’ve come out and said they are not planning any further rate cuts unless there is a material change in the outlook.”
Further, observers said, the U.S. economy is still growing. And, said Nomura Global Economics, the Fed would prefer not to change policy in a run-up to 2020 elections.
“Following the unusual underperformance of inflation late in the cycle, and associated declines in inflation expectations, we think the Fed will want to foster a period of ‘reflation,’” Nomura said.
Still, there are some who do envision more cuts in 2020, including TD Securities and Commerzbank.
“I think there could be as many as two cuts before the election,” said Marc Chandler, senior market strategist with Bannockburn Global Forex.
The CME FedWatch Tool shows that the interest-rate market was factoring in a 51.5% probability that the current Federal funds target rate will still be at the current 1.5% to 1.75% as of the December 2020 Fed meeting, with a 34.6% probability of a cut to 1% to 1.25%. There was an 11.6% chance of an even greater cut and a 2.3% chance of a hike.
“But by the end of Q1 or early Q2, I think the economy will be weakening,” Chandler said, adding that inflation may ease as well. “And that will allow the Federal Reserve to cut rates early in Q2.”
· Global growth of 2.5% expected next year
Global growth is expected to stabilise at 2.5% in 2020 before edging up to 2.7% in 2021, says IHS Markit.
The probability of a recession has decreased for 2020, and now stands at one in five.
The U.S. economy is expected to expand at a rate of 2.1% in 2020, down from the average of 2.5% recorded from 2017 to 2019.
UK GDP growth is expected to drop from 1.3% in 2019 to 0.5% next year.
The Eurozone growth will stabilise at 0.9% in 2020, after a growth slump this year, as low inflation and easing financial conditions continue to support consumer spending in the coming year.
China’s economy will continue its downward trend, slowing to 6% growth in 2020 and expected to carry on slowing down.
Japan’s GDP will grow 0.3% in 2020.
· U.S. President Donald Trump on Tuesday brushed off North Korea’s warning of a “Christmas gift,” saying the United States would “deal with it very successfully,” amid U.S. concerns that Pyongyang might be preparing a long-range missile test.
China, North Korea’s most important backer, meanwhile, urged Washington to take “concrete steps” as soon as possible to implement agreements reached during last year’s summit between Trump and North Korea leader Kim Jong Un in Singapore.
· Oil prices rose on Tuesday in thin pre-Christmas trading after Russia said cooperation with OPEC on supply cuts would continue and amid optimism that the United States and China could finalize a trade agreement.
Brent crude was up 81 cents, or 1.22%, at $67.20 a barrel, while U.S. West Texas Intermediate gained 59 cents, or 1%, to settle at $61.11 per barrel.
OPEC and Russia will continue their cooperation as long as it is “effective and brings results,” Russian energy minister Alexander Novak said in an interview on Monday.
OPEC and allies agreed in November to extend and deepen output curbs in place since 2017. Under the reduced output, as much as 2.1 million barrels per day (bpd) could be taken off the market, or about 2% of global demand.
Still, OPEC needs to do more to balance the market on a sustainable basis, Bjornar Tonhaugen, head of oil market research at Rystad Energy, said in a note.
Reference: CNBC, Reuters, Kitco, Electronics Weekly, PhilStar
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