· The dollar gained on Thursday after multiple data releases painted a positive U.S. economic picture, reversing earlier weakness following the preliminary deal between the United States and China to de-escalate their trade war.
U.S. retail sales increased for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, suggesting the economy maintained a moderate growth pace at the end of 2019.
A gauge of manufacturing activity in the U.S. Mid-Atlantic region also rebounded in January to its highest level in eight months, and the outlook is the brightest in more than a year and a half, the Federal Reserve Bank of Philadelphia said.
Other data showed that the number of Americans filing for unemployment benefits fell more than expected last week.
The data flurry was positive, particularly the Philly Fed number, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. It reduces the probability for a recession, which was low already.
The dollar index was last 97.329, up 0.10% on the day, after falling to 97.085 overnight, which was the lowest since Jan. 8.
The dollar has weakened since the United States and China on Wednesday signed a deal in which China will boost purchases of U.S. goods and services by $200 billion over two years in exchange for the rolling back of some tariffs. But 25% tariffs on a $250 billion array of Chinese industrial goods and components used by U.S. manufacturers, and China’s retaliatory tariffs on over $100 billion in U.S. goods, will remain.
For the dollar, its a mixed bag ... it should mean higher U.S. growth this year, but it also means higher foreign growth this year and less risks abroad, and that tends to pull capital out of the U.S. and be dollar negative, said Anderson.
· Fed's Bowman: Current interest rate likely appropriate for "this year"
The U.S. Federal Reserve is likely to leave interest rates on hold throughout 2020 absent an economic shock, Fed Governor Michelle Bowman said on Thursday in remarks that included a bullish outlook for an ongoing rebound in the housing sector.
Bowman told members of the Home Builders Association of Greater Kansas City their industry could look forward to a continued lift from low interest rates, a critical factor in the demand for new houses.
“Low interest rates will continue to be a key factor supporting growth in housing activity,” Bowman said. The Fed’s current policy rate is “likely to remain appropriate this year as long as incoming information remains broadly consistent” with the current outlook for continued low unemployment and ongoing modest economic growth.
“The U.S. economy is currently in a good place,” and the expectation is for it to remain there, Bowman said.
· China will boost purchases of U.S. goods and services by $200 billion over two years in exchange for the rolling back of some tariffs under an initial trade deal signed by the world’s two largest economies, defusing an 18-month row that has hit global growth.
Key world stock market indexes climbed to record highs after the deal was signed on Wednesday in Washington, but later stalled on concerns it may not ease trade tensions for long, with numerous thorny issues still unresolved.
“While markets seemed to take this deal as a risk-on signal, we should all be aware that headlines about trade, particularly U.S. China trade, are going to be a constant feature of 2020,” said Hannah Anderson, Global Markets Strategist, J.P. Morgan Asset Management in Hong Kong.
· U.S. President Donald Trump gained support among American farm families at the end of last year, Reuters/Ipsos poll data showed, as Trump touted a Phase 1 trade deal with key agricultural buyer China.
· From Huawei to the South China Sea, deep political rifts between Beijing and Washington are set to persist, despite a trade relations breakthrough, as the United States pushes back against an increasingly powerful and assertive China.
“The broader, darkening picture is not going to be brightened much by this deal,” Bates Gill, an expert on Chinese security policy at Macquarie University in Sydney, said of the initial trade deal signed on Wednesday.
This backdrop spans China’s militarization of the South China Sea; rising tensions over Taiwan, which Beijing claims as its own; U.S. criticism over human rights in Hong Kong and Xinjiang, and a backlash against telecoms gear provider Huawei.
“We can see Phase 1 as an emergency treatment to lower the temperature, but it has not addressed the fundamental problems,” said Wang Heng, a professor at the University of New South Wales in Sydney, who studies the China-U.S. economic relationship.
· The Trump administration is touting the U.S.-China Phase 1 trade deal’s dispute settlement and enforcement mechanism as the major difference between the 86-page agreement unveiled on Tuesday and past pledges by Beijing to change its trade practices.
But the final result of any dispute that prompts new U.S. tariffs to be slapped back on Chinese goods could tear the whole trade deal apart, according to the text of the agreement released on Thursday.
U.S. Trade Representative Robert Lighthizer insisted on a strong enforcement mechanism “with real teeth” to hold China to its Phase 1 pledges to protect American intellectual property, curb the forced transfer of U.S. technology to Chinese firms and boost purchases of U.S. goods and services by some $200 billion over two years.
· China is expected to report on Friday that economic growth slowed to its weakest in nearly three decades in 2019 amid a bruising trade war with the United States, and more stimulus steps are expected this year to help avert sharper slowdown.
For the whole of 2019, growth is expected to slow from 6.6% in 2018 to 6.1% — the weakest since 1990 — and cool further to 5.9% in 2020, a separate Reuters poll showed, reinforcing views that Beijing will roll out more stimulus measures.
· Economists polled by Reuters Jan. 13-16 were slightly more upbeat compared with the previous few months, amid improved sentiment around the U.S.-led trade war. But the majority made little change in their point forecasts for growth and inflation for this year, next year and 2022.
Nearly 80% of economists who answered an additional question said euro zone economic activity had bottomed out.
“Economic growth has bottomed out, but we don’t think it will pick up by much anytime soon, either. It is going to flat- line at the current low levels,” said Moritz Degler, senior economist at Oxford Economics.
“Any pick-up would likely need to come from the industrial sector and that situation would improve only if there was a permanent resolution to the trade conflict between the U.S. and China. We don’t think that is very likely.”
· The Senate impeachment trial on whether to remove U.S. President Donald Trump from office formally began on Thursday even as a congressional watchdog found that the White House broke the law by withholding security aid for Ukraine approved by Congress.
The assessment from the nonpartisan Government Accountability Office (GAO) was a setback for Trump, but it was unclear if it would figure in his trial in the Republican-led Senate given that key questions such as whether witnesses will testify or new evidence will be considered remain unanswered.
· Oil rose more than 1% on Thursday, as progress on another major trade deal fed optimism that energy demand will grow in 2020.
The U.S. Senate approved a revamp of the U.S.-Mexico-Canada Free Trade Agreement a day after the signing of the Phase 1 trade deal between U.S and China.
Brent crude was up 95 cents to $64.95 a barrel, and U.S. West Texas Intermediate crude surged 1.2%, or 71 cents, to settle at $58.52 per barrel.
The U.S. Senate on Thursday approved a revamp of the 26-year-old North American Free Trade Agreement. A day earlier, U.S. and Chinese leaders signed the Phase 1 trade deal that calls for the world’s largest importer to buy $50 billion more of U.S. oil, liquefied natural gas and other energy products over two years.
However, analysts warned that China might struggle to meet the target and said oil prices could be volatile until more details emerge.
Trade sources said sharply higher Chinese purchases of U.S. energy products as part of the China-U.S. trade deal will shake up global crude oil trade flows if American supplies squeeze rival crudes out of the top oil import market.
Reference: CNBC, Reuters, Kitco
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