· The U.S. dollar slipped on Monday as optimism that the U.S. and China will reach a trade deal reduced demand for safe haven currencies, and as investors waited on the Federal Reserves meeting this week.
U.S. President Donald Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing. The comments come after the U.S. Trade Representative’s office and China’s Commerce Ministry said on Friday that U.S. and Chinese officials are “close to finalizing” some parts of a trade agreement, with talks to continue.
The trade war between the U.S. and China has been blamed for adding to global economic weakness, which in turn has prompted central banks globally to cut rates.
The dollar index against a basket of six major currencies fell 0.07% to 97.765. The greenback gained 0.19% against the Swiss franc to 0.9962. The Australian dollar, which is highly sensitive to the Chinese economy, rose 0.07% to $0.6827 U.S. dollars.
Hopes that Britain will reach a deal to leave the European Union, and avoid a disorderly exit, also boosted risk sentiment on Monday. The European Union on Monday agreed to a 3-month flexible delay to Britain’s departure from the bloc as Prime Minister Boris Johnson pushes for an election after opponents forced him to request an extension he had vowed never to ask for.
The next major U.S. focus is this weeks Federal Reserve meeting. The U.S. central bank is expected to cut rates when it concludes its two-day meeting on Wednesday, though investors will be watching for any indication that further cuts are likely. Fed policymakers are deeply divided on whether the U.S. central bank should continue cutting rates.
· The consensus among analysts is that the Fed will cut rates by another 25bps this week while introducing a much more hawkish language into the monetary policy statement.
When cutting the last two times, Fed officials have pointed to fears of slowing economic growth, U.S.-China trade uncertainty, and low inflation as the main reason for lower rates.
This upcoming meeting will likely take the target range down to 1.5%-1.75% from 1.75%-2%, with the market anticipating a 94.6% chance of a rate cut on Wednesday, according to the CME FedWatch Tool.
· The view: "The deceleration in domestic demand, weaker wage pressures and declining inflation expectations suggests that economic weakness is spreading and that more action may be needed in the coming months," ING economists said in a note to clients on Friday. They expect the Fed to follow up additional rate cuts in December and January.
That schedule, however, is dependent on the data — and some important indicators will be delivered later in the week.
An advance estimate of third quarter GDP for the United States is expected to come in at 1.7%, according to a Reuters survey of economists. And the jobs report for October, which will post on Friday, is projected to show jobs growth substantially below the 136,000 jobs added in September. (Though the General Motors strike is expected to have a big impact.)
· US considers extending some tariff exclusions on Chinese imports as trade talks continue
The U.S. will consider extending certain tariff exclusions on $34 billion of imports from China as the two nations work toward a trade agreement, the Office of the U.S. Trade Representative said Monday.
Nearly 1,000 products were exempted from the July 2018 tariff, and those exclusions are set to expire on Dec. 28.
· Boris Johnson loses vote to hold UK election on Dec. 12, says government will try again Tuesday
Lawmakers in the U.K. have rejected the government’s request to hold a general election on Dec. 12. A House of Commons will vote on Monday, with lawmakers deciding on whether to approve Johnson’s request in return for more time to adopt his Brexit deal, Reuters reported.
Under the rules, two-thirds of Parliament, or 434 MPs, needed to approve the motion for it to pass, but it got only 299 as opposition lawmakers declined the opportunity to take on Prime Minister Boris Johnson at the ballot box.
Johnson said the government will try again with a new route for a Dec. 12 election in a vote on Tuesday, saying it was time to “get Brexit done.”
Johnson’s defeat means he is now likely to seek a different route to an election - by passing a law with a simple majority that bypasses the 2011 Fixed-term Parliaments Act.
· Oil prices eased on Monday after four days of gains as worries about weak Chinese industrial data offset hopes oil demand will rise as talks progress on a Sino-American trade deal.
Brent futures lost 40 cents, or 0.6% to settle at $61.62, while U.S. West Texas Intermediate (WTI) fell 85 cents, or 1.5%, to settle at $55.81.
Earlier in the session, Brent and WTI rose to their highest levels in a month, hitting $62.34 and $56.92 per barrel, respectively. WTI fell after failing to break above its 200-day moving average.
Profits at Chinese industrial companies fell for the second straight month in September as producer prices continued to slide, highlighting the impact of a slowing economy and protracted U.S. trade war on corporate balance sheets.
That data was partially offset by comments by U.S. President Donald Trump that he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing.
Reference: CNBC, Reuters, Kitco, New4jax
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