Stocks in Asia rebounded on Wednesday as US President Donald Trump stopped a proposal to block GE-made jet engine sales to China, tweeting that ‘we don’t want to make it impossible to do business with us’. Trump’s reconciliatory move was welcomed by investors as with the coronavirus outbreak wreaking havoc on the global economy, spurring trade anxieties would only make things unnecessarily worse. Especially now that the phase-one trade deal should assure $200 billion worth of American exports to China.
Nikkei (+0.96%), Shanghai’s Composite (+0.31%) and ASX 200 (+0.43%) gained as WTI crude jumped to $52.66 a barrel.
US equity futures traded higher after a lackluster session in New York.
FTSE (+0.70%) and DAX (+0.61%) futures hint at a positive start in Europe as well, following the Tuesday sell-off on Apple’s warning that slow Chinese production and demand would prevent the company from reaching its first quarter targets. The announcement sent Apple shares (NASDAQ:AAPL) 1.83% lower yesterday.
The USDJPY traded past the 110 mark as the Japanese yen saw a modest retreat on the back of better risk appetite. Japan’s exports fell for the fourteenth straight month in January, but the 2.6% decline was much less than a 6.9% drop expected by analysts and the 6.3% fall printed a month earlier.
Gold consolidated gains after spiking past $1600 per oz. Improved risk sentiment should allow a $20-$30 downside correction in the precious metal in the coming week.
The US dollar index stabilized near four-month highs before the release of the FOMC minutes from the January meeting due later today. The Fed minutes will certainly show that the US economy is in a ‘good place’ despite the outlook being ‘clouded’ by the coronavirus outbreak. And yesterday’s strong Empire Manufacturing index should give them credibility. Fed members will likely watch the developments and the possible implications of the coronavirus on US and world economy and stand ready to act, yet a detailed intervention plan is certainly not in place at this stage. After the recent spike in US inflation, it is also possible that the Fed allows a certain degree of overshooting in consumer prices following a decade of below-the-target data. Overall, the Fed minutes should confirm a neutral stance in the foreseeable future.
The euro slipped below the 1.08 mark against the greenback on the combination of meaningfully softer-than-expected ZEW surveys in the Eurozone and Germany, and significantly stronger-than-expected Empire Manufacturing index in the US. The ZEW index, which captures investors’ expectations for the next six months, reflected the first perception of the coronavirus shock on the European economy. Export-driven sectors such as carmakers and electronics saw the sharpest declines. Onwards, the divergence between the Fed and the ECB expectations should continue weighing on the single currency. Traders will likely remain seller on advances above the 1.08 mark. For short-term trades, the topside appears to be capped by the 50-hour moving average, which currently stands at 1.0820.
In Britain, the latest jobs data released yesterday was good and bad. The economy added 180’000 new jobs in the three months to December, the fourth largest surprise since 2015, but average earnings growth fell to 2.9%, the lowest since October 2016. Cable first fell to 1.2970, then rebounded past the 1.30 mark on news that Rishi Sunak will reveal the budget on March 11 as planned. He is expected to expand spending in line with Johnson’s will. Expectation of higher government spending should temper the prospect of lower interest rates in the foreseeable future, as the Bank of England (BoE) will likely wait and see the benefits of higher spending before moving ahead with a possibly premature rate cut. Due today, the inflation data should confirm a significant improvement to 1.6% in January from 1.3% printed a month earlier. A strong inflation figure should further curb the dovish BoE expectations and translate into a stronger Sterling. But Cable should meet resistance at 1.3050/1.3100 area.