Week Ahead: Deadline Day Approaches For China-US Deal

Market Analysis /
22 Feb 2019

The Week Ahead



The greenback will again be dominated by President Trump and the run up to the March 1st deadline for the end to the truce between the US and China. However, developments over the weekend have changed the view on the trade negotiations. President Trump has announced that the US will delay imposing further trade tariffs on Chinese goods, which were scheduled to go from 10% to 25% on March 1. Trump said both sides had made "substantial progress" in trade talks, which is why the tariff increase was tabled, and this sentiment sent Chinese stocks up nearly 5%. President Trump added that he was planning a summit with Chinese President Xi Jinping in Florida to cement the trade deal as long as more progress occurs.

As far as the economic calendar is concerned, it may be quiet in the early part of the trading week. However, housing data due out on Tuesday, GDP and the weekly initial jobless claims on Thursday will be the headliners. The macroeconomic picture will be especially important after last week’s FOMC meeting minutes showed the Fed were going to halt the reduction of the balance sheet. Another indication that the central bank is worried about further economic downside.



Last week’s data in Europe was a mixed bag, but it was the German GDP data on Friday that showed a slight uptick that generated major relief for the markets. Germany had seen a contraction in its growth in the previous quarter that had led to fears of a statistical recession in the Eurozone’s largest economy.

Last week’s ZEW survey also pointed to falling consumer and business confidence in Europe. The fall in confidence is no real surprise especially after the negative picture that was painted by Mario Draghi at the previous ECB meeting. Adding this to the potential disruption caused by a proposed 25% tariff on all European cars exported to the US and there is a real cause for concern for outlook for Europe.

The economic calendar shows a relatively quiet week for European data with only Friday’s consumer confidence and unemployment data.



Theresa May is facing growing calls to say she would delay Brexit rather than leave the EU if no deal is in place by the end of March. A new plan from some Government MPs suggests ministers postpone Brexit until 23 May "to conclude negotiations". It is being suggested as an alternative to cross-party proposals which would see MPs take control of the process.

Sterling is trading near recent highs going into the new week with markets digesting the reports the UK will extend the Brexit date, in order to buy the UK more time to get its house in order. Yet again a lot of this focusses on the amendments, with the amendment to look out for being the Cooper/Letwin amendment which if passed, would result in the government being directed to request an extension to the Article 50 process, should it not get a deal through Parliament by 13 March. The issue with this is that a similar amendment by MP Yvette Cooper has already been submitted and failed in January. Yet again Brexit comes down to whether Parliament are willing to let Theresa May continue with her own plan or whether they want to take action to stop a potential No Deal.



The Canadian Dollar extended gains at the back end of last week. The market was showing positive signs for the Loonie after retail sales data for December displayed households are weathering a global economic storm in fine fashion.

Markets already knew Canada's economy saw a soft finish to 2018 due to a sharp fall in oil prices and an unease among businesses over President Donald Trump's trade war with China, but Friday's figures showed households were undeterred from spending ahead of the Christmas holidays.

The two main releases this week are inflation data and GDP growth rate figures. The price of Crude oil and the outlook for the US are also influential factors as we approach the deadline for the US-China truce, with signs that Donald Trump wants to extend and continue positive talks.



The Australian Dollar fell sharply at the end of last week on news coal from Australia had been banned from 5 Chinese ports, confirming geopolitics are a major source of risk for the currency.  Markets will remain wary of headlines on the matter as there were additional reports over the weekend  that indicated Chinese ports had not banned coal imports from Australia. If this view gains traction the Aussie could reverse many of the previous moves.

The Australian market will also be cautious of headlines concerning U.S.-Chinese trade talks. As the talks have taken a positive turn which has been supportive of the Australian Dollar. However, with a deal still  far off we would not be surprised to see further negative headlines emerge as either side tries to put pressure on those sitting on the other side of the negotiating table.



The most important release for the Kiwi is Q4 retail sales which came out overnight on Sunday and showed a much bigger improvement in the retail picture than was previously expected. The reading showed an increase of +1.7% vs the +0.5% expected for the fourth quarter figures.

Another key release is ANZ bank's business confidence survey in February, which is forecast to show a rise in the balance to +28 from -24.1 previously. Sentiment indicators are often useful leading meters for the real economy and therefore have a large impact on the currency.


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