Dollar at the mercy of trade talks, Fed speak and US GDP

The US dollar could extend declines to high-beta currencies if we see continued progress with China and US reaching a broad trade deal that prevents the US from raising tariffs on Chinese goods next week.

The biggest data release of the trading week will be the US fourth quarter GDP reading, which is expected to decline from 3.4% to 2.4%.  The expectations for this release range from 1.4% to 3.0%, with the median average estimate being 2.3%.  A strong miss could help solidify the markets expectations that the next Fed move will be a rate cut. Currently, markets are seeing a 25.4% chance that the next move would be a rate cut at the January 29, 2020 meeting.

The greenback will also be highly impacted by a plethora of Fed speak, with Vice Chairman Clarida speaking on Monday, Fed Chairman Powell testify on the Semiannual Monetary Policy Report before the Senate banking Committee, and Fed President’s Bostic, Harker and Kaplan speak on Thursday.  The Fed has clearly signaled that rates are hold for now, but this week’s commentary could give further light on when we could see quantitative tightening end this year.

The Trump-Kim summit takes place in Vietnam on Wednesday and any steps that lead toward progress with North Korea delivering denuclearization is very positive for risk.

USD – Trade talks to peak this week

GBP – UK Parliament to vote on Brexit deal by March 12^th

STOCKS – V-shaped rally reaches key resistance

GOLD – Slower growth remains key driver
OIL – Continued support stems from Trade optimism, production cuts and shortages from sanctions

Bitcoin – Textbook Short-Covering Move

Buffett – Eyes major acquisition after posting biggest loss in history

USD

The US dollar started the week on softer footing as expectations remain high a trade deal will be reached between the US and China.  Tensions are likely to heat up as both sides try to finalize the final terms and ways of an enforcing an agreement.  What is also important to watch is President Trump’s satisfaction with his team, last week’s spat with top trade negotiator Robert Lighthizer highlights the volatility we could see if the President will ultimately sign off on a deal.

GBP

There is not enough time to deliver Brexit on time, so we should not be surprised that Prime Minister May confirmed we will not see a meaningful vote this week and that it will occur by March 12^th.   The key date on everyone’s calendar is the EU summit in Brussels on March 21^st and 22^nd.  The EU will want the final terms agreed amongst UK Parliament, before the EU decides whether or not to alter the terms of the Brexit agreement.

As we near the March 29^th Brexit deadline, speculation will grow on how Brexit will be delayed.  Early on Sunday, the Telegraph reported the PM is considering extending Article 50 and could see Brexit delayed for up to two months.

STOCKS

Earnings season has one last full week of companies reporting results, but the focus will likely remain on the trade front.  US stocks have delivered better than expected results and price action on the S&P 500 has delivered a V-shaped recovery that has reached a key resistance level.  With the financial markets heavily pricing in a trade deal to happen before the March 1^st deadline, we may see limited upside on the official announcement.

GOLD

Gold prices, safe-haven flows in general have had some difficulty providing a clear directional move as global growth concerns have been countered with positive developments on the US-China trade war.  The precious metal is also supported by accommodative stances from the Fed, ECB, PBOC and RBA.  The Thursday release of fourth quarter GDP for the US could provide a significant move for the precious metal.  Current expectations are for GDP to fall from 3.4% to 2.4%.

OIL

Crude prices continue to be supported on optimism a trade deal will be reached in the coming days by the world’s two largest economies, OPEC and friends remain committed to production cuts and shortages of heavy crude supplies that stem from American sanctions on Venezuela and Iran.  Oil markets are well aware of growing US production that will eventually take away the effectiveness of the OPEC + production cuts, but that story may not come to fruition until the summer months.  In the short-term, we could see oil vulnerable to a “buy the rumor, sell the fact” situation.  A formal announcement of trade deal with the Chinese and Americans could see limited upside as exhaustion enters the bullish move with oil prices.

Bitcoin

After a steady three-week rally, Bitcoin delivered a significant short-covering surge that took price above the psychological $4,000 mark to $4,162(according to Coinbase.  In early trade to start the trading week, Bitcoin free-falled back towards the $3,700 region, which is also below last week’s trading range.

Buffett

The Berkshire Hathaway’s annual letter to shareholders showed a net loss of $25 billion in the fourth quarter, the largest loss in history and signaled that their cash position is likely to grow as acquisition prices appear to be sky-high.  The environment remains difficult for acquisitions, it has been three years since the last time Berkshire had a significant one.  Warren Buffet is hoping to make an elephant size acquisition, but that has probably been then case over the past six quarters, since their cash position has remained above $100 billion mark.  In the fourth quarter, Berkshire Hathaway’s cash position rose to $112 billion, and the company, like many on Wall Street has decided to use their cash, about $1.3 billion in share buybacks and to acquire shares of other companies.

Berkshire has large positions with American Express, Apple, Bank of America, Delta Air Lines, Goldman Sachs, JPMorgan Chase, Coca-Cola and Kraft Heinz.

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