On Sunday, US President Donald Trump announced he would postpone the increase in import duties on Chinese commodities which was scheduled to come into force on March 1. He cited notable progress in negotiations with China on a number of important issues, including protection of intellectual property, technology transfers, agriculture, services, and currency. If negotiations continue this way, the US President is going to meet Xi Jinping to sign an agreement.
The trade confrontation affected not only the two countries but many others, especially given the fact that it occurred when the economic cycle approached the peak. While China wants to avoid a hard landing, Trump is willing to fulfil one of his main promises during his election campaign and cut the trade deficit. He needs to prevent a plunge in US economic growth and close an agreement, even not an ideal one.
The developments supported stock markets in mainland China the most. The CSI 300 index rose by 4% today, reaching the highest level since June 2018. It is showing bullish signs, rising by more than 23% from the January bottom. Meanwhile, RMB gained 0.4%, touching 7-month peak.
Increasing demand for risky assets positively influenced such AUD and NZD, which rose 0.3% each during the Asian session. Other currencies reacted more discreetly, with EUR, GBP, and JPY traded in very narrow ranges.
For reference, Theresa May’s decision to postpone the vote in parliament on her proposed Brexit agreement had almost no impact on GBP on Monday. The vote was scheduled for Wednesday, but May postponed into March 12. The likelihood of postponing Brexit is increasing day by day, and May is reportedly considering to delay it for 2 more months. GBP is likely to stay around $1.30 in the short term until the UK exits the EU.
Although politics remains the main driver of trading in financial markets, this week is rich in key economic data. After the US data on retail sales, orders for durable goods, sales in the secondary housing market and a few more reports were worse than expected, the markets will study the US GDP growth rate in Q4 which will be released on Thursday. The annual GDP growth is expected to decline to 2.4% from 3.4% seen in Q3. Given the negative developments in recent weeks, there GDP growth may be lower than expected. The personal consumption expenditures price index (PCE), the Federal Reserve's preferred inflation indicator, and personal income data will be published on Friday.