· The dollar and riskier trade-exposed currencies found some support on Friday as fresh hopes for a breakthrough in Sino-U.S. trade talks were tempered with caution.
White House economic adviser Larry Kudlow said late on Thursday that the two parties were getting close to a deal and the “mood music is pretty good”.
He offered no new details, but the sentiment was enough to reverse a little of the safe-haven Japanese yen’s overnight gain and to buoy the Australian and New Zealand dollars.
The yen JPY= fell 0.2% to 108.57 per dollar and dropped 0.3% on the rising Aussie.
The New Zealand dollar NZD=D3 rose 0.1% to $0.6388. China's yuan CNY= rose 0.2% but remained just shy of strengthening past the 7-per-dollar level at 7.0076.
Against a basket of six major currencies .DXY the greenback was steady at 98.140 as caution and the lack of concrete news in Kudlow’s remarks kept a lid on risk appetite.
“It may not be a game-changer,” said Terence Wu, a treasury strategist at OCBC Bank in Singapore. “Thus, we think any reversal in the risk-off trades may not see a good shelf-life.”
Mixed signals on trade negotiations have abounded in recent days while evidence of the damage the dispute is wreaking on the global economy has mounted.
The next scheduled economic updates are Eurozone trade and inflation data due at 1000 GMT and the New York Fed manufacturing survey due at 1330 GMT.
On Thursday, China’s commerce ministry said the two countries are holding “in-depth” discussions, while U.S. President Donald Trump said on Tuesday a deal was close.
But the Financial Times, citing unidentified people close to the talks, said an agreement may not be reached in time to avoid a new round of U.S. tariffs taking effect on Dec. 15.
Sub-par growth figures on Thursday from China and Japan, followed by lacklustre updates in Britain and Europe underlined the potential downside if a deal falters.
Few are game to make a decisive call either way.
· JAPANESE YEN TECHNICAL AND SENTIMENT OUTLOOK
On a daily chart, USD/JPY has closed under a Rising Wedge chart pattern in the aftermath of an Evening Star candlestick formation. These are bearish price signals that could imply a reversal of the dominant uptrend since August. Confirmation is key with technical analysis. If prices manage to find upside momentum, pushing back into the chart pattern could overturn it. Uptrend resumption would entail a daily close above 109.32.
I would like to see prices breach the November 1 low at 107.89 for further bearish confirmation. This might be the case given that trader positioning is favoring the upside. According to the IG Client Sentiment Report from November 14, traders are further net-long USD/JPY than yesterday and last week.The combination of current sentiment and recent changes gives us a stronger bearish contrarian trading bias.
· Global investors seem much more confident that better times lie ahead as hopes for lower US borrowing costs and, perhaps, progress on a trade deal between Washington and Beijing send stocks to record highs in New York.
Equity markets may be the most visible sign of this optimism but currencies with a strong, positive correlation to global growth such as the Australian Dollar are also doing a lot better.
However, whether the current burst of financial market exuberance is rational or not in terms of its own expectations, there’s a buildup of evidence that trade tensions continue to bite deep into the real-world economy in a way that could crimp demand for years to come.
The Organization for Economic Co-operation and Development estimates that Foreign Direct Investment flows have fallen by around 20% in the first six months of this year. The second quarter saw particular strains with FDI sliding 42%. Both Europe and the US have seen heavy falls in FDI while China has seen gains, albeit comparatively small ones.
China’s growth is clearly decelerating with the portentous 6% level now very much in doubt. Export titans Japan and South Korea are clearly struggling. Corporate America has warned repeatedly that demand for its goods from China is in doubt.
· Malaysia’s economy grew 4.4% in the third quarter from a year earlier, the central bank said on Friday, the slowest in a year on weaker exports amid the U.S.-China trade war.
The pace of expansion matched the 4.4% rise forecast in a Reuters poll, but was much slower than the 4.9% pace in the second quarter.
· China’s central bank extended 200 billion yuan ($28.60 billion) through its medium-term lending facility on Friday, the second time it has done so this month, while keeping the lending rate unchanged.
The move to add long-term funds caught the market off guard as the central bank had already injected funds last week. Several traders said the cash injection was likely a response to tighter liquidity in the interbank market from late Thursday, which pushed up borrowing costs.
· As retailers gear up for the all-important holiday shopping season, we’ll get a read on the state of the American consumer when the retail sales number for October is released at 8:30 a.m. on Friday. The consensus is for sales to rise 0.2%.
The Street is watching the number perhaps even more closely than usual after retail sales unexpectedly declined 0.3% in September, which was the first contraction in seven months.
· Consumers are likely to have increased their spending in October, after a surprising pullback in September.
The government’s October retail sales report, due at 8:30 a.m. ET Friday, is one of the most important data releases of the next couple of weeks. The report, and November’s jobs data, will be the final two big economic releases the Fed will review before it meets Dec. 10.
The report will also reveal whether the consumer is still healthy and capable of driving more than a sluggish pace of economic growth. And for Barclays economists, the retail sales report may settle the score on whether a drop off in spending in August and September was the result of consumers recovering from a spending spree around Amazon’s Prime Day in July.
· President Donald Trump on Thursday asked the conservative-majority U.S. Supreme Court on Thursday to reverse a lower court ruling that directed his longtime accounting firm to hand over eight years of his tax returns to New York prosecutors.
Trump appealed a Nov. 4 ruling by the New York-based 2nd U.S. Circuit Court of Appeals that prosecutors can enforce a subpoena demanding his personal and corporate tax returns from 2011 to 2018 from accounting firm Mazars LLP.
“In our petition, we assert that the subpoena violates the U.S. Constitution and therefore is unenforceable. We are hopeful that the Supreme Court will grant review in this significant constitutional case and reverse the dangerous and damaging decision of the appeals court,” said Jay Sekulow, one of Trump’s lawyers.
The legal questions include whether the subpoena violates the part of the U.S. Constitution that lays out the power of the president.
· China is still calling for the U.S. to roll back tariffs as part of any “phase one” agreement, as trade negotiations between the world’s two largest economies drag on.
“The trade war was begun with adding tariffs, and should be ended by canceling these additional tariffs. This is an important condition for both sides to reach an agreement,” China’s Ministry of Commerce spokesperson Gao Feng said at a weekly press conference Thursday, according to a CNBC translation.
“If both sides reach a phase one agreement, the level of tariff rollback will fully reflect the importance of the phase one agreement,” Gao said, noting the two countries’ trade delegations are in deep consultations on this topic.
· U.S. Attorney General William Barr wrote a letter November 13 to Federal Communications Commission Chairman Ajit Pai saying Chinese technology giants Huawei and ZTE “cannot be trusted,” according to the memo.
Barr was writing in support of the FCC’s draft Report and Order that would disallow the two companies -- which make popular computers, smart phones, routers and internet equipment -- from selling goods to entities using money from the FCC’s Universal Service Fund. These entities often include regional, rural broadband providers.
· The Chinese and Hong Kong governments condemned on Friday an attack by a “violent mob” on the city’s justice secretary in London, the first direct altercation between demonstrators and a government minister during months of often violent protests.
Secretary for Justice Teresa Cheng, who was in London to promote Hong Kong as a dispute resolution and deal-making hub, was targeted by a group of protesters who shouted “murderer” and “shameful”.
· Oil prices rose on Friday as OPEC’s outlook for oil demand next year fueled hopes that the producer group and its associates will keep a lid on supply when they meet to discuss policy on output next month.
Optimism that the United States and China could soon sign an agreement to end their trade war also seeped into the market after White House economic adviser Larry Kudlow said a deal was “getting close”, citing what he called very constructive discussions with Beijing.
Brent crude futures were up 28 cents, or 0.5%, at $62.56 a barrel by 0441 GMT, having dropped 9 cents on Thursday.
West Texas Intermediate crude was up 28 cents, or 0.5%, at $57.05 a barrel, after falling 0.6% in the previous session.
· CRUDE OIL TECHNICAL ANALYSIS
Prices remain within their dominant, gradual daily-chart uptrend and, with little sign of overbuying in the momentum indicators, may retain their upward bias.
However, bulls have yet to crack a zone of resistance which guards the way back to September’s highs. They will need to take the market back above $57.74 to break back into that zone and keep the market there. Attempts to break into this area have been foiled on an intraday basis for nearly two weeks so it clearly bears watching.
Reference: Reuters, CNBC,DailyFX
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