Xi Does Not Inflame, Dollar Stays Tame

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Market Drivers April 10, 2018
Xi speech seen as conciliatory USDJPY pops above 107.00
McCafferty – BOE should not dally over rates
Nikkei 0.54% Dax 0.93%
Oil $63/bbl
Gold $1336/oz.
Bitcoin $6722

Europe and Asia:
GBP UK BRC 1.4% vs. 0.7%
AUD AU Business Conditions 14 vs. 20

North America:
CAD Housing Starts 8:15
USD PPI 8:30

Chinese President Xi Jinhping offered a note of calm at his speech in Boao forum providing a surge of risk on flows in Asian session trade as markets breathed a note of relief that China did not choose to escalata trade tensions with US.

Speaking at the forum President Xi actually noted that China was ready to adopt some reform and lowe trade tariffs for autos while enforcing intellectual property rights for foreign corporation in China. The speech was seen as conciliatory and spurred a nice rally in USDJPY all the way to 107.25 but the pair failed to hold the highs after Chinese officials reported that US spurred its first offer to cut trade deficit by $50B.

Although trade tensions between China and US still fester, President Xi’s attempt to de-escalate the situation was seen as positive by the market, but investor worries will no doubt persist until some sort of detente is reached. For now USDJPY appears to have support ahead of the 106.50 level and unless risk sentiment turns decidedly sour later in the day, it should hold those and perhaps even trade towards 107.50 if markets sense that some sort of compromise is in the works.

Meanwhile elsewhere, cable continued to see a bid in early London dealing, running through the 1.4250 level on statements by Mccafferty that BOE should not procrastinate with monetary policy normalization. The comment was seen as nod to nudge the BOE to raise rates in May and help cable spurt higher. It was also boosted by better than expected BRC like for like numbers which printed at 1.4% vs. 0.7% showing a pick up in UK retail demand for the first time in months.

In North America, the calendar focus will be on PPI data with ex-food and energy expected to rise by 0.2% from the month prior. PPI data remains muted but has inched to nearly 3% on a year over year basis, so any uptick in the report would be seen as further evidence the Fed will continue to hike as the year proceeds.

The economic news, however, will take a backseat to any political news out of Washington DC. In addition to the continuing debate on trade, the market will also focus on the testimony of Facebook Chief Mark Zuckerberg in front of Congress. Facebook stock which has plunged more than 20% over the past several months on privacy violation concerns is a key component of US indices and his performance is shaky could affect the broader market flows as the day proceeds which in turn could weigh on USDJPY and send it back down to a retest of the 106.50 support of risk aversion returns.

Boris Schlossberg
Managing Director

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