Trade Talks Progress A Big Boost For Sentiment

 | Feb 14, 2019 06:47AM ET

h3 60-Day Extension A Bullish Catalyst

Optimism around Sino-U.S. trade talks is continuing to provide a boost for equity markets on Thursday, with a meeting between President Xi and top U.S. officials on Friday being closely monitored.

Trump’s claim that negotiations are going “very well” and reports that a 60-day extension is being considered is encouraging. This was always, realistically, the best possible outcome of these initial talks and I think we have to be pleased that this means two more months without new tariffs. The ultimate goal is for previous tariffs to be removed entirely but this is another important step towards that.

It’s difficult to know exactly what impact the tariffs have had on the trade data so far, with figures suggesting there was some front-loading of Chinese exports prior to them being imposed. But data overnight – assuming it’s reliable – suggests they’re continuing to hold up well, with exports surging by 9.1% in January, smashing market expectations of a 3.2% decline. The timing of Chinese New Year always makes the data at the start of the year more difficult to interpret, which can lead people to take it with a pinch of salt.

h3 Germany Avoids Recession, Just/h3

There hasn’t really been much of a bullish case for the euro recently and Germany avoiding falling into recession by the skin of its teeth in December doesn’t exactly inspire any change in that. The GDP data for the fourth quarter fell short of analyst expectations of 0.2%, with the economy instead flatlining. The number is subject to revision though so it may be too early to celebrate just yet.

h3 Dollar Powers On But Gold Remains Resilient, For Now/h3

The dollar on the other hand, is putting up quite a fight, despite the widespread belief a few months ago that it was going to be a challenging year for it. It certainly got off to a tough start but it’s been on quite a run this month and is up more than 2% from the end of January lows. The positive noises around trade talks took the wind out of its sails over the last couple of days, with progress generally being a bearish story for the greenback, but it continues to grind higher.

Gold (Orange) Versus USD (Purple) Daily Chart