Trump-Kim Fails; Market Doesn’t Care

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Market Drivers February 28, 2019
Trump Kim don’t reach a deal
US GDP on tap
Nikkei -0.79% Dax -0.17%
Oil $56/bbl
Gold $13246oz.

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 meaning eco data on the docket while the major political failed to make an impact.

The US-N. 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. USDJPY 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 US-China trade talks. One of the key diplomatic criticism of the Trump-Kim summit was the fact that it failed to pre-negotiate any of the key issues before the meeting. Although US-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 US-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 US 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 US 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 Fed stationary for the rest of the year. However, the much bigger impact will happen if the number beats and prints anywhere north of the 2.5% range because it would then suggest that the US 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 USDJPY and barring any unexpected geopolitical news would send the pair through the 111.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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