USD: Trade Cliff Delayed?
The continued belief that China and the U.S. will come to a trade agreement that will prevent an increase in tariffs and could result in trade taxes being cut has spurred equities higher and continued to put pressure on the USD. Similar news of a plan by U.S. lawmakers to avoid another shutdown has also allowed investors to breathe a little easier, eliminating the near-term need for a port in the storm.
Much like the chatter and hopes around an extension to the Brexit negotiations, an extension of talks between China and the U.S. is seen as a positive – the wider concerns over trade and regulations are still evident – however, a delay to any date that sees an ultimatum delivered is naturally a more optimistic scenario.
Comments from Fed Chair Jerome Powell overnight that he does not think that the probability of a recession is “at all elevated” will also have heartened investors, although such a pronouncement limits the chances that the Federal Reserve is anywhere close to cutting interest rates anytime soon. Such a change was a very long-odds bet only a few months ago but recent weakness in the global economy has certainly given policymakers in the US pause for thought.
NZD: Rates To Stay As Is For The Rest Of The Year
Kiwis are flightless birds but the currency was given wings this morning by the Reserve Bank of New Zealand’s latest press conference that saw the central bank combat expectations that monetary policy is set to loosen anytime soon.
Governor Orr said that the chance of an interest rate cut had not increased since the previous meeting in November. When asked whether they had considered a cut at this meeting he answered that they consider cuts and hikes at every meeting in their scenario analysis, but that they are very comfortable with current policy.
We expect interest rates in New Zealand to remain as they are for the rest of 2019.
GBP: Massacre Avoided For Now
Theresa May will avoid a Valentine’s Day Massacre in the Commons if only because there will now not be a meaningful vote on the Brexit deal until February 27th at the latest, and amendments to the Prime Minister’s motion on Brexit are to be voted upon tonight. Currently, five amendments are listed on the Order Paper and we will have to wait until around 1 pm for the Speaker to announce which ones he will call.
Before that, we have the latest reading of inflation for the U.K. Inflation is not a focus for markets at the moment given the back and forth, rumour and uncertainty of Brexit. The Bank of England’s most recent inflation report told us that, “Overall, the Monetary Policy Committee judges that inflation expectations continue to be consistent with inflation close to the 2% target. The MPC will continue to measures of expectations closely.”
Inflation is due at 09.30 and is expected to fall below the Bank’s 2% target for the first time since January 2017.