The decks are being cleared for the signing of “phase one” of a trade agreement between the US and China. With translations done, both sides are ready for the signing in Washington tomorrow. The US has even sweetened the deal by removing China from its “currency manipulator” list (which it was put on back in August). This was an easy win for both sides as no reasonable assessment of the yuan would suggest that the PBoC has been manipulating it (if anything the opposite). So for the US to magnanimously remove this status is simply good optics in front of the deal which helps relations, but effectively achieves little other than improve relations between the two. Market sentiment has taken a leap forward early this week, but there is a risk that it could become a “buy on rumour, sell on fact” moment. There is much to question about how much extra of US agricultural products that China can buy to make a difference. The most important part of the agreement is over forced technology transfers, however, something that again will be difficult to immediately measure. On market moves, the yen is under pressure at seven month lows against the dollar. However, this move is something of a disconnect to yield differentials and needs to be watched. Gold also remains under pressure. Once the dust settles on “phase one” and the difficulties of subsequent phases come out, will markets be so ebullient. Adding to today’s risk appetite is that China’s trade data showed signs of positivity as the surplus increased in December to +$46.8bn (from +$37.9bn in November). Although this was not as much as the $48.0bn expected, China did see exports increasing by +7.6% and imports increasing by +16.3%, both of which were better than forecast.
Wall Street closed solidly higher once more with the S&P 500 +0.7% at 3288 for another all-time high. Although US futures are a shade lighter this morning (-0.1%) Asian markets have been broadly positive (Nikkei +0.7%, Shanghai Composite -0.3%). In Europe, there is a mildly positive open in prospect with FTSE futures and DAX futures +0.1% higher. In forex, there is limited real direction across the majors, although recent weakness for both JPY