Stocks move higher as US may consider lifting duties on China

Summary:

• US Treasury Secretary Steven Mnuchin proposed lifting duties on China to push forward trade talks

• Japan’s inflation slowed last month highlighting the difficulty in striking the 2% inflation objective

• Currencies trade flat, Chinese stock markets edge higher

Progress in the hands of the US

US indices jumped in late trading on Thursday following revelations that the United States could consider lifting all or some of duties it imposed on the Chinese economy last year. This proposal was put forward by US Treasury Secretary Steven Mnuchin who added that the goal was to push forward trade talks and get China’s support for longer-term reform. On the other hand, US Trade Representative Robert Lighthizer has resisted this idea suggesting that it would be considered as a sign of weakness, as the WSJ reports. Moreover, some officials from the White House are reportedly claiming that no such a discussion of lifting tariffs is taking place right now adding that US President Donald Trump has no interest in making decisions now. Finally, a Treasury spokesman said that talks were “nowhere near completion” implying that a lot of things need to be agreed on before striking any binding solution on the matter. Anyway these remarks were seen by market participants as a positive signal and they rushed to buy stocks in late trading on Thursday. As a result, the Dow Jones (US30) jumped and was gaining 1% before correcting this increase and ending the day with a still decent 0.7% rise. The similar rises were seen in the SP500 (US500) and the NASDAQ (US100). Let us remind that we got information earlier this week that Chinese vice premier Liu He is scheduled to travel to Washington at the end of this month for trade negotiations and this the point the Trump’s administration is focusing on right now. The US 10Y yield spiked on the news from above 2.72% to almost 2.76% but then erased this rally to some extent. It keeps trading slightly above 2.74% this morning.

Friday could be a crucial day for the NASDAQ investors. Note that the price broke through its 50DMA earlier this week and it tested this level successfully yesterday. Therefore, it seems to be reasonable to expect the price rising toward 6865 points where the first more notable resistance can be found. Nevertheless, we reckon that this pick-up might be only temporary having nothing to do with a broad-based bull market Source: xStation5

G10 flat while Japan’s price growth slows

Movements across the G10 currencies have been pretty benign in recent hours with the Norwegian krone making the largest increase and gaining 0.15% against the US dollar. Looking at the macroeconomic calendar during the Asian session one needs to be focus basically only on the one print - Japanese inflation for December. Headline price growth slowed to 0.3% from 0.8% in annual terms and matched expectations. Core inflation gauges turned out mixed, while inflation excluding fresh food decreased to 0.7% from 0.9% in the prior year, price growth taking out fresh food and energy held unchanged at 0.3%. Either way, this is a remarkably slow pace of price growth underlining that the BoJ remains a long way off from even considering rising interest rates in the foreseeable future. Here it is worth noting that the interest rate market is pricing in 15% odds to see a rate cut be the year-end. Nonetheless, having in mind that the yen tends to move on external factors rather than domestic economic releases we stick to our view that the Japanese currency could perform well over the entire year, and this is especially true when we see the US dollar losing bullish momentum. On the flip side, a planned sales tax increase (October) seems to be the largest domestic risk for the Japan’s economy in the months to come.

The USDJPY is struggling nearby its crucial long-term support line. This level needs to be broken if bears want to push much lower (even toward 100/101). In the near-term the pair may continue trading in a range between 111 and 108. Source: xStation5

In the other news:

• Japanese industrial production fell 1% MoM in November after falling 1.1% MoM in October, the final data showed

• Fitch says that property market conditions in Australia and New Zealand are likely to continue to soften

• Donald Trump has officially cancelled his travel to Davos at the World Economic Forum

• Chinese stocks gain 1.3% a while before the close, the SP500 futures point to a slightly positive opening