Fundamental Comment

Economic Week: Return of trade negotiations, another Brexit deal vote

Economic Week

Global market watchers will be following a number of important economic events this week, led by the resumption of trade negotiations between the United States and China, as well as another Parliamentary vote on Brexit deal.

US Dollar

The U.S. dollar will undergo tough tests this week as investors await the outcome of the US-China negotiations and the final U.S fourth-quarter GDP report.

As usual, the outcome of the trade talks will continue to be the main driver of the dollar in particular and financial markets in general.

An American delegation led by Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will visit Beijing on March 28-29 to resume trade negotiations, while Chinese Vice Premier Liu He will travel to Washington in early April.

Expectations that a trade agreement between the two sides would not be reached soon may help the dollar to resume its rebound, after hitting its lowest level in seven weeks last week.

In terms of economic data, the US final GDP report may refer signal an upside revision to 2.7 percent growth in the fourth quarter (year-on-year), compared with an initial growth of 2.6 percent.

Data from the U.S. due this week, including manufacturing, housing and personal spending, may also receive some attention from investors.

Pound Sterling

The British pound fell last week against the U.S. dollar on mounting expectations that it is still possible for Britain to exit the European Union without a deal.

Markets will carefully watch another critical vote by the British Parliament on Brexit deal, amid a state of pessimism that lawmakers can pass the deal to get an extension of Article 50 until May 22.

If the Parliament voted down the Brexit deal this week, Article 50 will be extended until April 12, thereby increasing the chances for Britain to leave the EU without an agreement, which in turn will negatively affect the sterling.

For UK economic reports this week, the most important will be the final GDP, which could show a stabilizing at 0.2 percent in the fourth quarter, compared to a 0.6 percent growth in the July-September quarter.

Euro

The eurozone lacks the release of important economic data this week and therefore the euro may be affected by the general trend in the markets.

However, the consumer price index inflation gauge in the euro area will be the most relevant report this week, where it is expected to linger at 1.5 percent in the year ended March.

The single currency, therefore, may reflect the movements of the dollar according to the developments of the trade US-China talks mentioned above.

Commodities

Last week, gold managed to achieve its third consecutive weekly gain, but gains were cut by the end of the week as the dollar rebounded.

Gold could get its direction this week from the general sentiment in the market, as the US-China trade talks resume, which in turn will affect the movements of the dollar and global stocks.

As for oil, prices fell from its 2019 peak at the end of last week, but crude oil secured its third straight weekly advance due to OPEC-led supply cuts and US sanctions on Iran and Venezuela.

US government data released this week may show that crude inventories have risen by 4 million barrels in the week through March 22, following a decline of nearly 9.6 million barrels in the week ended March 15.

While the rise in US crude stockpiles is likely to affect oil prices, optimism or pessimism in the markets after the US-China trade negotiations could have a greater impact on the prices of energy products. 

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