Asian stocks are starting the week on a positive note while US equities futures are also pointing higher, as investors take into account China’s latest announcement that it would raise penalties on intellectual property theft. The move suggests that key concessions are being made in order to increase the prospects of a partial US-China deal, which is giving investors another opportunity to capitalize on risk-on trading activity.
Gold prices have dipped below the $1460 psychological level, the Japanese Yen has weakened towards the 109.0 mark against the US Dollar, while 10-year US Treasury yields have inched higher.
The fact that safe haven assets such as Gold, which still boasts a year-to-date gain of nearly 14 percent, remain relatively supported only points to the underlying sense of caution that are keeping some investors anchored amidst these bursts of increased risk appetite. Even if the keenly awaited “phase-one” trade deal is signed, it doesn’t mean it will be all smooth sailing for the markets thereafter, with further bouts of volatility expected as the world’s two largest economies try to reconcile their trade differences over subsequent phases.
Resilient US data to support Dollar, makes case for leaving US interest rates unchanged
The tone surrounding the ongoing trade talks is likely to overshadow the incoming economic data this week, even as investors try and get a better read on the global economy. The US Q3 GDP revision as well as consumer spending data should inform investors how well the US economy is propping up global growth, or whether it will have to pass that baton over to the rest of the world sooner rather than later. With the US Dollar gaining on the back of Friday’s better-than-expected PMI readings, more signs of a resilient US economy could help support the Greenback, while staying the hand of a data-dependent Federal Reserve.
Euro still weighed by dismal economic outlook
EURUSD is hovering just above the 1.10 level, now weaker against most of its G10 peers, following Friday’s conflicting PMI figures out of the Eurozone. Despite the better-than-expected manufacturing PMI readings, the sector’s prolonged contraction appears to be dragging down the service sector as well. The EU economy just can’t seem to catch a break, with such economic concerns dampening the bloc’s currency.
Considering the apparent economic headwinds, the governments of EU members may do well to heed ECB President Christine Lagarde’s call in rolling out more fiscal stimulus measures to shore up the floundering economy. A limited US-China trade deal, one that includes the removal of tariffs, would also go a long way in brightening the Euro’s outlook and validating hopes that the EU is headed for a turnaround.