US-Chinese trade talks ended and optimism about the outcome sent the Chinese yuan higher and the US dollar lower yesterday afternoon. The combination of dovishness by the US Federal Reserve and trade harmony is risk-friendly and dollar-negative, even if Asian equities are threatening to run out of steam. While the USD looks to have peaked, equity valuations still look promising. In the near term, higher-level discussion is planned between China and the USA, possibly on 30-31 January. There is growing expectations that the US will suspend tariffs implemented in 2018 to give China time to announce reforms. A temporary settlement will send global sentiment higher. China’s central bank is not looking for a sharp appreciation, however, significant undervaluations in the Shanghai composite is an opportunity for investors.
Fed Chairman Jerome Powell predicts no recession in 2019 and says the Fed will be patient in interest tightening. His dovish tone supported the risk bounce and broad USD weakness. Traders shrugged off the conflict over the US federal government shutdown. As the S&P 500 nears 2600, a bullish break would signal a reversal of the recent correction.
By Peter Rosenstreich
