Trade Uncertainty and China’s Slow Down Test Resilience Ahead of Brexit Plan B

With a Plan B seemingly in the wind, Theresa May could be in hot water later today, with Parliament getting restless.
Bob Mason
GBP/USD daily chart, January 21, 2019

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side, with key stats including 4th quarter GDP numbers and December fixed asset investment, industrial production and retail sales figures.

Out of China, the economy grew by 6.4% in 2018, which was in line with forecasts, whilst down from the previous quarter’s 6.5%. Quarter-on-quarter, the economy grew by 1.5%, which was also in line with forecast, whilst down from the 3rd quarters 1.6%.

Growth hit its lowest growth rate since 1990 and, with the effects of the ongoing trade war between the U.S and China becoming ever more evident in the numbers, the end of January could be a big day for the markets should Vice Premier He wrap up an agreement with Trump in DC.

Fixed asset investments rose by 5.9% in December, which was at the same pace as in November, while coming up short of a forecasted 6%.

On the positive side, industrial production jumped by 5.7% in December, year-on-year, coming in ahead of a forecasted 5.3% rise and November 5.4% increase. Retail sales also impressed, rising by 9%, which came in well ahead of a forecasted 8.2% rise and November 8.1% increase.

The Aussie Dollar moved from $0.71552 to $0.71655 upon release of the figures, before rising to $0.7167 at the time of writing, down 0.01% for the morning. A pickup in U.S Treasury yields at the end of last week pinned back the Aussie Dollar ahead of the numbers, in spite of hopes of an end to the U.S – China trade war.

The impact of the numbers was telling across the Asian markets, with the Kiwi Dollar also finding support off the back of the numbers, rising from $0.67252 to 0.67371 at the time of writing, down 0.18% for the session. The Japanese Yen gave up some of its early gains against the U.S Dollar, falling from ¥109.515 to ¥109.64 at the time of writing, the Yen up 0.13% for the session.

In the equity markets, there were gains across the majors, following the upside in the U.S markets on Friday and this morning’s economic data out of China. At the time of writing, the CSI300 was leading the way, up 0.66%, with the Nikkei, Hang Seng and ASX200 seeing gains of 0.35%, 0.34% and 0.31% respectively.

The Day Ahead:

For the EUR, it’s a particularly quiet day ahead, with key stats limited to December wholesale inflation figures scheduled for release out of Germany.

We can expect the numbers to have an immediate impact, forecasts being EUR negative, while direction through the day will ultimately be hinged on market risk appetite, influenced by market reaction to this morning’s numbers out of China and hopes of a trade deal.

There will also be Brexit to factor in later today, with all eyes on Parliament later today. The EUR has been relatively insensitive to the trials and tribulations of the British PM but, should a no deal scenario become likely, some fallout could be on the cards.

At the time of writing, the EUR was up 0.13% to $1.1378.

For the Pound, there are no material stats scheduled for release through the day, leaving the Pound in the hands of Theresa May, Brexit Plan B, or lack of and chatter from Parliament.

At the time of writing, the Pound was down 0.10% to $1.2859.

Across the Pond, there are no stats scheduled for release, with the U.S markets closed.

Both the U.S equity and bond markets will be closed, leaving trading across the markets on the lighter side.

At the time of writing, the Dollar Spot Index was down 0.05% to 96.285.

For the Loonie, another quiet start to the week leaves the Loonie in the hands of market risk appetite driving crude oil prices, with this morning’s numbers out of China not being as disastrous as some may have thought, allowing the Loonie to cut back its early losses on hopes of a trade agreement.

The Loonie was down 0.04% to C$1.3265 against the U.S Dollar at the time of writing.

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