Market Drivers February 28, 2019
Europe and Asia:
- No data
North America:
- USD GDP 8:30
- USD Chicago PMI 10:00
The FX market was very quiet in overnight trade with very little meaningful eco data on the docket while the major political failed to make an impact.
The U.S.-North Korea denuclearization summit failed to come to terms with Trump and Kim leaving the meeting without any formal agreement in Hanoi. This was a major disappointment for President Trump but hardly surprising for the market as risk-off flows saw only the tiniest of reactions. USD/JPY drifted down about 15 pips from the overnight highs but then held steady as markets looked forward to the North Open rather than dwell on disappointment.
Unlike the President, the markets held very little expectation for an agreement with North Korea, which has broken every diplomatic promise its has ever made over the past 30 years of negotiations. However, the Trump-Kim failure could be a much serious event if it foreshadows the lack of professionalism in U.S.-China trade talks.
One of the key diplomatic criticisms of the Trump-Kim summit was the fact that it failed to pre-negotiate any of the key issues before the meeting. Although U.S.-China trade talks are a completely different matter with negotiators discussing a myriad of issues, it those issues are not fully resolved before the next Trump - Xi meeting the same disappointing results could occur, but this time with much greater consequences as the U.S.-China trade ties remain the key macro driver of global growth this year.
On the economic front the focus today will turn to the preliminary Q4 U.S. GDP data due at 13:30 GMT. It’s hard to say how much of a reaction it will garner given the one-off hits to U.S. growth of the government shutdown, but the market will certainly be interested in the results.
Ahead of the data consensus view is that GDP slowed materially to 2.3% rate from 3.4% rate the period prior. If the number comes in line it may cause a small hit to the dollar confirming that slowdown in growth will keep the Fed stationary for the rest of the year.
However, the much bigger impact will occur if the number beats and prints anywhere north of the 2.5% range because it would then suggest that the U.S. economy is far more robust than previously thought and with current easing credit conditions from the Fed could resume 3% growth in Q1. All of this would likely fuel a rally in USD/JPY and barring any unexpected geopolitical news would send the pair through the 111.00 figure as the day proceeds.