Today's news headlines:
- ‘Greece draws strong support for new 15-year bond’ – Greece has managed to secure over 14 billion Euros of orders for its new 15-year bond in what is the latest signal that investors are willing to support European economies that were once seen as high-risk. In recent months, higher-yielding European debt have reached record low yields, as investors have desperately sought yield in an environment of negative interest rates. (Financial Times)
- ‘Airlines scramble to cancel China flights as virus spreads’ – British Airways, one of many airlines, have cancelled flights to Beijing and Shanghai as the number of confirmed Coronavirus cases in China soared to 6,000. The airline has said they will reassess the situation in the next few days, while UK officials advised against non-essential travel to the country. (Bloomberg)
Trumps diplomatic touch
While the Coronavirus story continues to suppress market positivity heading into tonight’s Fed meeting, the real story is a political one. Donald Trump has laid out his Middle East peace plan for Israel and Palestine, which strongly favours Israeli interests and diverges from established US policy in the region. The president has done away with a balanced approach throughout his administration – moving the US embassy to Jerusalem and recognising Israeli rights in contested lands – so this ‘deal of the century’ is no different. Given that this approach is unlikely to gain sufficient traction for success, the impression one gets is that this has been another press opportunity for the president.
Speaking of presidential vanity moments, this afternoon Donald Trump is set to sign the long-expected USMCA agreement between the US and its neighbours, Canada and Mexico. The deal is essentially a revision of the previous NAFTA deal but amended for the contemporary US economy composed of more digital services, etc. When Trump came into power a revision of the trade deal was in the works, but he has since subsumed all previous efforts into his version, which stresses protection for agriculture and manufacturing industries. The deal has overwhelming approval from the electorate and bi-partisan support from the Washington establishment, which will provide a much-needed distraction for the final phases of the ongoing impeachment trial.
Bottom Line: The irony of this is that Donald Trump caused delays to USMCA – in the same vein as his trade dispute with China – so doing a victory lap for removal of same said political uncertainty is a stroke of genius. Trump has timed all of these events very well. They will arrive at the same time as he is excoriated in the senate impeachment trial, once again strengthening the connection to his voting base while playing on that tried and true Washington-outsider narrative.
Yesterday, Cable briefly dipped below the 1.30 figure as the US Dollar advanced in a global flight to safe-haven assets. The pair has opened today’s session above the big figure, but further downside risks persist ahead of the Federal Reserve monetary policy announcement this evening and the Bank of England’s (BoE) announcement tomorrow. A light economic calendar today may bring a quiet session, as markets await the upcoming central bank decisions.
The trade-weighted Euro index continues to drift lower, supporting the currency-cross around the 1.18 level. The pair ticked higher on this morning’s London open, despite multiple Eurozone data points beating expectation. The pair continues to trade in its tight January range ahead of the Bank of England’s highly uncertain interest rate decision tomorrow. The pair could trade flat today as markets await the key decision.
Yesterday, the common currency found support at the 1.10 figure but failed to find much rebound as we test the level again this morning. The pair dipped below 1.10 in November but hasn’t closed below the level since October 2019. If the Dollar continues its advance in the global flight to safety and the Euro continues its slide into multi-year lows on its trade-weighted index, a close below 1.10 in January is very plausible. This evening’s Federal Reserve interest rate decision could consolidate a move one way or the other.