House and Senate approve spending bill to avoid shutdown

Summary:

• Both US chambers approved a spending bill and directed it to the White House to seek a Trump’s signature

• May is likely to soften its stance on the “backstop” after she’s Brexit motion was rejected on Thursday

• A gap between the US and China remains wide as both “scramble to produce an agreement”

Shutdown avoidable, US and China scramble to get a deal

Seeking to avoid another US government shutdown both the House and the Senate approved a spending bill and directed it to the White House to get a Donald Trump’s signature. The Senate voted 83 to 16 in favour of a bill while the House voted 300 to 128 in favour of the law. Let us remind that this bill is going to be a defeat for Donald Trump and if he signs it (the most probable scenario), Trump will admit defeat in seeking more funds in order to build a wall at the Mexican border. The revamped spending bill provides only $1.375 billion for border barriers, well below what the US President has asked for ($5.7 billion) to fulfill his promise. However, Trump is likely to take executive action in a bid to get the money the administration wants for border security. Either way, signing the bill will be critical step in avoiding a tailspin and therefore should be considered as positive from the US economy’s point of view. Looking at the retail sales data we got yesterday one may assume that the shutdown may have weighed on US consumers’ spending in the final month of the past year. On the other hand, the data did not see increased Christmas-related purchases which, in part, could be tied to a change in consumers’ preferences who increasingly buy their Christmas gifts in November.

Friday is also the second and the last day of higher-level negotiations between US and Chinese officials. So far we have not been offered any more significant revelations as both countries are reportedly “scrambling to produce an agreement”, according to the Financial Times. Let us notice that neither the US nor China has confirmed a March deadline extension as of yet.

After spiking immediately after the poor retail sales reading, the EURUSD has come off its highs in recent hours. As a result, the pair has come back to the consolidation and it could stay there for a while given revelations (or lack thereof) from Beijing in terms of trade negotiations. Source: xStation5

Another May’’s defeat

UK lawmakers rejected the PM May’s major Brexit motion giving her more time in seeking changes to her deal with the European Union. It was no binding vote though. Nevertheless, another May’’s defeat suggests that a no deal scenario has become more likely. After the vote Theresa May said that the UK government would continue to pursue legally binding changes to backstop with the EU. She also added that the defeat in the Parliament showed that some conservative lawmakers were concerned about taking no-deal off the table. Meanwhile, we got some revelations brought by Bloomberg overnight signalling that Theresa May does not want to renegotiate a Brexit deal. To sump up, the standstill continues, Theresa May will now have two weeks before a “meaningful vote” on her revamped Brexit agreement on February 27. The latest developments from the UK are unlikely to reassure the EU as it is more and more annoyed by the fact that there is still no agreement being acceptable by the UK Parliament.

The British pound is trading at its crucial technical level in the form of the 75SMA. This line could be critical during today’s session and could set the moods for upcoming days. Source: xStation5

In the other news:

• China’s CPI grew 1.7% YoY in January, below the expected 1.9% YoY; at the same time PPI increased 0.1% YoY, also below the expected 0.3% YoY

• New Zealand’s manufacturing PMI for January dropped to 53.1 from 55.1

• China’s Hang Seng (CHNComp) is losing 2.1% a while before the close in response to no breakthrough in the US-China trade dispute

• Breaking news: Mnuchin said "productive meetings with China's Vice Premier Liu He"