Asian stocks are trading lower, despite their US counterparts tantalisingly close to setting new record highs, as investors continue sieving through potential signals from the noise surrounding the highly anticipated US-China trade deal. US President Donald Trump teased markets saying that a deal could happen “soon”, even as he repeated his tariff threats. Risk aversion appears to be creeping back into the markets, allowing safe haven assets to trim their month-to-date losses. Gold has pushed back towards $1460 while USDJPY has returned to sub-109.0 levels at the time of writing.
With most Asian currencies currently weaker against the US Dollar, the near-term outlook for Asian currencies remain primarily dictated by the prospects of a US-China trade deal, as investors are hopeful that the signing will take place by year-end. Considering that much of the optimism surrounding the trade deal has been priced in, this suggests that the upside for Asian currencies appear limited, with potential gains further muted by the Dollar’s resilience.
Powell’s speech, US data unlikely to trigger massive moves in DXY
Considering that President Donald Trump’s latest speech offered no new clues surrounding the US-China trade deal, the Dollar will now turn its immediate attention to the incoming US economic data, as well as Fed chair Jerome Powell’s testimony before Congress. Powell is expected to reiterate that US monetary policy is currently in a “good place”, with markets currently expecting the Fed to stand pat on US interest rates at least through the first half of 2020. However, should Powell make what is perceived to be a dovish comment, that could prompt some immediate softness in the Dollar.
The upcoming releases of the October US CPI and retail sales data should support the narrative that the FOMC will leave its policy settings unchanged over the coming months. With inflation subdued and consumers still keeping economic growth momentum intact, the US economy is expected to continue its outperformance over its peers, which should buffer the DXY’s resilience.
Brent stumbles as US-China trade deal prospects dictate prices
Brent futures have retreated below $62/bbl, as markets await fresh signals surrounding the US-China trade talks. With the next OPEC+ meeting just weeks away, it appears that the alliance is pinning their hopes squarely on a trade deal to send Oil prices higher, rather than triggering deeper supply cuts. An official trade deal would offer some sorely needed reprieve for the near-term outlook on global demand, while injecting confidence into Oil bulls going into 2020.