Financial markets are consolidating this morning as pensive traders keep their powder dry for some interesting days ahead. As a meeting between Donald Trump and President Xi approaches at the G20 it is likely that he will feel compelled to make some sort of remark on the trade dispute. Press reports suggest that in the event that the meeting does not go well, Trump is ready to engage the increase of tariffs to 25% in January and enact tariffs upon the remainder of Chinese exports to the US. This should not necessarily come as a surprise but if so, will not endear him to the Chinese either. The dollar would likely be responsive to any newsflow on this in the coming days. However, also keep an eye out for the implications for monetary policy of the Federal Reserve too. Richard Clarida vice chair of the FOMC discusses the need for “data dependence” today, ahead of a speech by Fed chair Jerome Powell tomorrow. How strongly Clarida advocates a data dependent Fed (he is known to be close to chair Powell) would potentially be a dovish signal and would open the potential for the dollar strength to wane. The only real direction this morning is coming from sterling, which is facing early pressure as traders respond to a suggestion from Donald Trump that a US/UK trade deal may not be possible given the deal that Theresa May has struck with the EU.
Wall Street rebounded strongly last night with the S&P 500 +1.5% at 2673 and although futures are a giving back some of these gains (currently S&P 500 futures are -0.2%) there were gains in Asian markets (Nikkei +0.6% and the Shanghai Composite was a tick lower). European futures are though a touch cautious in early moves today. In forex, the early selling pressure through sterling is the key move, as there is little direction elsewhere. In commodities, the consolidation is seen also through gold and silver, whilst oil is giving back over half a percent of the yesterday’s gains.
The economic data on the calendar is very much US centric, beginning with the S&P Case Shiller House Price Index at 1400GMT. The data is expected to show September house prices slipping back again to +5.3% (from +5.5% last month) which would be a six consecutive month of decline and also the lowest growth since November 2016. Then the Conference Board’s Consumer Confidence is at 1500GMT which is expected to drop back to 135.5 (from a record 137.9) which would still be a hugely impressive number. The Reserve Bank of New Zealand publishes its financial stability report at 2000GMT. Aside from the data points there are also a couple of FOMC speakers to look out for today. Key focus will be on Richard Clarida (permanent voter, centrist) at 1330GMT as he is still very new to the committee but is also considered to be close to chair Powell. Any dovish tilt will be picked up on. Also look out for the Atlanta Fed’s Raphael Bostic (voter, leans slightly dovish) at 1930GMT.
Chart of the Day – NZD/USD
The strong performance of the New Zealand dollar has been questioned in the past few sessions. Is the latest rolling over of NZD/USD once more part of the buy into weakness recovery seen since early October, or is it the beginning of renewed correction?