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TradeFred Daily Briefing
Mon 13-01-2020 12:00

In Brief:

  • Gold shows resilience as Wall Street shares enjoy record highs
  • Asian stocks trade higher ahead of US-China trade deal
  • Israel’s budget deficit expected to be 4% of GDP
  • Another BOE policymaker to push for Interest Rates cut

Emerging market currencies will cede more ground against the US Dollar this year, reversing the brief rally at the end of 2019, Reuters polls of foreign exchange strategists found. Last year was marred by the US-China trade war, which forced investors to take refuge in safe havens and proved to be painful for emerging market assets.

Major emerging currencies staged a rally of sorts in the last quarter of 2019 on hopes of Washington and Beijing inching closer to less fractured trade relations, but the political tension between the US and Iran has poured cold water on that already. "As the economic cycle is nearing its endgame and markets continue to face elevated risks, more emerging market currency weakness lies ahead," noted currency strategists at Societe Generale. "We expect modest depreciation of 5% in spot EM FX."

On the first Friday of 2020, US West Texas Intermediate hit eight-month highs above $64 per barrel. As this Friday came to a close, the US Crude benchmark had posted its biggest weekly loss in more than six months. Within a week, the world had come to the brink of a US-Iran war and moved far from it, wiping out the risk premium that had created much of the froth in oil that first week. Supply of crude and fuel products have, meanwhile, surged to levels not seen for a year, adding to the distress of oil bulls.

So long as Wall Street hits record highs investors can expect Gold to show some resilience. Gold futures for February delivery on New York’s COMEX settled up $5.80, or 0.4%, at $1,560.10 per ounce. Spot Gold, which tracks live trades in bullion, was up $6.11, or 0.4%, at $1,558.34 by 2:30 PM ET (19:30 GMT). Gold rallied as the three major US indexes hit record highs in early trading – with the Dow topping 29,000 for the first time – and managed to hold onto those gains into settlement.

The landslide election victory for President Tsai Ing-wen has reinforced a winning run for Taiwan’s financial markets. Traders on Monday had their first chance to react to the victory of Tsai’s Democratic Progressive Party - which advocates for Taiwan’s formal independence. The Taiex stock benchmark rose as much as 0.6% in early trading, while the local Dollar strengthened 0.3% to its highest level since June 2018. Saturday’s result is helping extend what has been a positive period of investor sentiment toward Taiwan. Stocks have recently touched the highest levels in nearly three decades. Taiwan’s Dollar strengthened for an eighth week last week in its longest winning streak since 2013 and government-bond yields remain near all-time lows.

Asian markets traded mostly higher on Monday morning ahead of the potential signing of the US-China partial trade deal due this week. China’s Shanghai Composite was little changed by 10:30 PM ET (02:30 GMT), while the Shenzhen Component gained 0.3%. The US is due to ink the long-awaited phase one trade deal with China at the White House on Wednesday, which hopefully will allow the world’s two largest economies to move on from a trade war that has roiled financial markets for the past 18 months. Under the terms of the accord, Beijing will increase imports from the US in exchange for the suspension of the December tariffs on Chinese imports to the US and a partial rollback of some existing tariffs.

US job growth slowed more than expected in December, but the pace of hiring likely remains sufficient to keep the longest economic expansion in history on track despite a deepening downturn in a manufacturing sector stung by trade disputes. The Labor Department's closely watched monthly employment report on Friday also showed the jobless rate holding near a 50-year low of 3.5%. A broader measure of unemployment dropped to a record low last month, but wage gains ebbed. The mixed report will probably not change the Federal Reserve's assessment that both the economy and monetary policy are in a "good place."

Canada gained a higher-than-expected 35,200 net jobs in December, entirely in full-time positions, while the unemployment rate fell to 5.6%, official data showed on Friday, figures that could ease some concerns about the strength of the Canadian economy. Analysts in a Reuters poll had forecast a gain of 25,000 jobs in December and an unemployment rate of 5.8%. Wages for permanent employees rose by 3.8%, Statistics Canada said, lower than the 4.4% gain seen in each of the previous two months. Canada shed an unexpected 71,200 net jobs in November, the biggest decline since 2009, while the national unemployment rate rose to 5.9%.

Prime Minister Boris Johnson's emphatic election win last month has led to a burst of optimism among British businesses and consumers, according to some early signals from the economy. Johnson's success in securing a large parliamentary majority, which ended a period of deadlock in Westminster, means Britain is on course to leave the European Union on January 31 and start an 11-month, no-change transition period. It also ended the prospect of a shift to the left in British politics. The opposition Labour Party had proposed nationalizing key industries, taking stakes in many other companies and more state intervention.

Australians opened their wallets in November to take advantage of Black Friday sales, providing a much-needed boost for retailers that have struggled in an environment of record-high household debt and stagnant real wages. Retail sales surged 0.9% in the month before Christmas, more than double economists’ 0.4% estimate, as consumers took advantage of steep discounts to buy up ahead of the traditional holiday period, data from the Australian Bureau of Statistics showed in Sydney Friday. The result sets up a potentially weak December if typical festive spending was pulled-forward. December sales have actually declined in the prior two years.

Israel's budget deficit is projected to be at least 4% of gross domestic product in the next few years if the government does not make tax and spending adjustments of tens of billions of Shekels, the Finance Ministry said in a report on Sunday. A year-long political stalemate has made it difficult to take proper fiscal steps since the caretaker governments are limited in power. A third election in less than a year in March would mean a 2020 state budget would not be approved until at least the middle of the year. In the meantime, a pro-rated version of the 2019 budget is being used.

Lebanon's central bank is seeking extra powers to regulate and standardize controls which commercial banks are imposing on depositors, the governor said on Sunday, saying his intention was to ensure "fair relationships" between banks and customers. Seeking to prevent capital flight, commercial banks have been tightly controlling access to deposits and blocking most transfers abroad since October, when anti-government protests brought a long-brewing Lebanese economic crisis to a head. The Lebanese authorities have not, however, introduced formal capital controls regulating these measures.

Bank of England policymaker Gertjan Vlieghe said on Sunday he will vote for a cut in interest rates later this month, barring an "imminent and significant" improvement in the country's growth data. "Personally I think it's been a close call, therefore it doesn't take much data to swing it one way or the other," Vlieghe, a member of the bank's Monetary Policy Committee, told the Financial Times. "I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer."

Vlieghe's comments follow other recent suggestions that Britain's central bank is edging toward a looser monetary policy. Bank of England Deputy Governor Sam Woods on Sunday said that Britain's financial sector could face a crackdown by regulators seeking to enforce their rules more tightly. "I think it's possible that as we come out of the reform phase, and enter a phase where we're defending the reforms that have been put in place, that you may see more enforcement activity," Woods told the Telegraph newspaper. Woods, who is the head of the Prudential Regulation Authority (PRA), the BoE's banking supervisory arm, also said the regulator wouldn't necessarily be hostile to consolidation in the banking sector, according to The Telegraph report.

See Also

In Brief:

  • Yen holds firm while riskier Asian currencies soften
  • Oil prices slip on news that tariffs will remain despite US-China trade deal
  • Gold snaps losing streak
  • Amazon to invest $1bn to bring Indian SMEs online

The safe-haven Yen held firm and riskier Asian currencies softened a little on Wednesday, as currency investors awaited the signing of the US-China trade deal with trepidation. The formal agreement is aimed at drawing a line under 18 months of tit-for-tat tariff hikes that have hurt global growth, but it will not end the trade dispute between the world's two largest economy. The USD/CNY pair lost 0.2% to 6.8943 by 12:01 AM ET (04:01 GMT).

TradeFred Daily Briefing

TradeFred Daily Briefing