Dollar firms up as stocks are steady ahead of key trade talks in Beijing

US GDP – Q4 revised lower from 2.6% to 2.2%

Trade Concessions – Foreign tech to gain better access

Brexit – Much Ado About Nothing

Oil – Trump wants OPEC to increase flow of oil

Gold – rises on safe-haven flows

USD

The US economy lost more momentum than expected in the fourth quarter.  The final GDP reading grew at a 2.2% annualized rate, lower than the first revision of 2.6% and below the economists’ forecast of 2.3%.  The largest part of the economy is consumer spending and that grew at a slower pace of 2.5%, missing expectations by a tenth of a percentage point.

The labor market remains the brightest part of the US economy.  Jobless claims showed the number of workers filing new applications for unemployment fell more than expected.

The US economy outlook should not change much following this morning’s releases.  Expectations have already started to grow for the Fed to cut more than 25 basis points by the end of the year.  Global growth concerns are hurting the US economy and right now the markets focus is still about seeing a trade deal get done between the two largest economies.

Brexit

The comedy that is Brexit, failed to deliver anything of substance after a wrath of indicative votes tried to show Parliament break a deadlock on the path forward.  PM May also offered her resignation to get her Brexit deal passed through, but the math showed it still would not be enough to get her deal pushed through.  Yesterday, Boris Johnson offered his support to the PM, but today he sings a different tune and says her deal is dead.  The key for May remains winning over DUP support and right now she does not have it.

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Trade Concessions

According to the Wall Street Journal, China’s latest offering in trade talks is to pilot foreign technology companies to own data centers.  Intellectual property theft, greater access to Chinese markets and enforcement are all key roadblocks that need to be addressed for the US to sign off on their end of the trade agreement.

Today, Vice Premier Liu He will host a new round of negotiations with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.  This is a pivotal step that could help bring discussions closer to seeing a final meeting between Presidents Xi and Trump.  Expectations are probably low that we will see both sides agree upon enforcement with this round of talks.  The base case still remains a framework agreement signed by the end of May.

S&P 500 futures rose towards the morning’s high following the China’s cloud concession to foreign technology firms.

Oil

West Texas Intermediate crude continues to respect the $60 a barrel level following yesterday’s bearish EIA inventory report.  The build of 2.8 million barrels prevented crude from continue its recent rally.  The next catalyst for oil is likely to be an update on the trade front.

President Trump tweeted that it is very important for OPEC to increase the flow of oil and voiced concerns about world markets being fragile and that oil is getting too high.  His comments took oil to fresh session lows.

Gold

Gold prices are softer on the day as the dollar rallies and bond volatility eases this morning.  The precious metal appears to be in a wait and see mode on both the bond story and trade war update.  If the dollar continues to catch a bid, gold could see a test of the recent range low of $1,280 a troy ounce.

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