Asian markets put in a mixed performance following a rough session on Wall Street. European bourses are pointing to a softer start as concerns over global growth are weighed up against the prospect of the end of the US government shutdown and further stimulus in China.
BoJ Cuts Inflation Outlook
The BoJ cut its inflation forecast whilst warning of growing risks to the economy from weakening global demand. Whilst the BoJ believe that Japan’s economy, the third largest in the world, will continue expanding at a modest pace, this will be a considerable challenge. Trade tensions between its two biggest trading partners, the US and China, in addition to other risks from Brexit and increased US protectionism have lifted the risk of Japan sliding into a recession this year. The yen fell lower, giving back gains from Tuesday.
Slow Progress in Trade Talks
Adding to the risk off sentiment were reports that the Trump administration had rejected an invitation from China for preparatory trade talks this week, ahead of high-level talks next week. Whilst the White House denied the report, its mere existence is unnerving traders. We continue to see trade dominate headlines and sentiment; a reflection of just how important a quick solution is to the health of the global economy.
US Gov. Shutdown End in Sight?
Optimism is building that the US government shutdown could be coming to an end on Thursday as the senate schedule a vote on Democratic backed legislation to re-open the government. The government shutdown has entered its 33rd day and so far, the impact on the dollar has been minimal. Whilst there is no data to respond to the dollar has remained buoyant. However, with so many workers not being paid over an extended period of time, there will be an impact on the economy. This will be seen in future data. For now, the dollar remains steady, whether that proves to be the case when data shows a weakness in Q1 is doubtful.
UK Parliament To Support Move Away From No – Deal Brexit
The pound was also holding ground following reports that the UK Parliament could prevent the UK from crashing out of the EU without a deal. Labour, the main opposition party saying that it would support an extension to Article 50, should Theresa May fail to negotiate a palatable divorce bill, is being considered a sensible way to avoid a no deal.
Over the past week, since Theresa May’s crushing defeat in Parliament, pound traders have been pricing in an increased possibility of an extension to Article 50. This has helped lift the pound back towards $1.30. We expect the pound to sit around these levels until the next step is confirmed. An agreement to extend Article 50 beyond the current 29th March deadline, could see the pound target $1.34.