Dollar holds gains on progress in US-China trade talks

US dollar rises as trade deal progresses

Daily Market Comment – Risk appetite softens on mixed US signals about trade deal; pound slips after BoE

White House spokeswoman Stephanie Grisham told Fox Business Network in an interview on Friday that tariffs could be lifted on Chinese goods if an agreement is reached, but she gave no further details.

Risk appetite cooled off slightly on Friday as confusing signals by United States officials on whether the White House is ready to accept the roll back of some of the tariffs on Chinese imports raised question marks about China's assertion yesterday that the two sides had already agreed to phase out each other's levies.

The Chinese commerce ministry, without laying out a timetable, said the two countries had agreed to cancel the tariffs in phases.

The pan-European STOXX 600 index has also pierced through its January 2018 peak to come within a striking distance of its record high set in April 2015.

The mood contrasts with Thursday's surge of optimism in global markets on news Beijing and Washington had agreed to roll back tariffs as part of a first phase of a trade deal. His comments corroborated a Reuters report that many within the Trump administration are fiercely opposed to rolling back tariffs, which was never part of the original deal outline agreed by the Chinese and USA presidents in October.

The initial news from China was positive, said David Kelly, chief global strategist at JPMorgan Funds in NY. But with operating earnings lower in a slowing economy, "the fundamental justification for this market increase is pretty weak".

Uncertainty about the fate of the trade negotiations between the United States and China has kept markets on their toes, with European stocks benchmarks mimicking their Asian peers and retreating from the previous session's highs.

Investors have few options outside of equities, with the return in money markets and long-term government debt below the rate of inflation, Kelly said.

Asia had been quiet overnight, with the China news arriving just before European markets opened.

The prospect of a recession diminishes if some tariffs are removed, said Peter Cardillo, chief market economist at Spartan Capital Securities in NY.

On Wall Street, the Dow Jones Industrial Average rose 182.24 points, or 0.66 per cent, to 27,674.8. S&P 500 futures retreated 0.1 per cent after the NY benchmark hit its highest closing level ever on Thursday.

The global benchmark for crude climbed above $62 a barrel. Brent crude settle up 55 cents at $62.29 and West Texas Intermediate added 80 cents to settle at $57.15 a barrel. The dollar rose to near three-month highs versus the yen after the news, retracing its 0.3% losses earlier in the session, as investors interpreted the comments as positive news.

The Canadian dollar, meanwhile, fell against the greenback after data showed the Canadian job market stagnated unexpectedly in October, losing 1,800 net positions, while the unemployment rate remained at 5.5%.

The result for the dollar was spectacular, and it headed up to close to its best position in three months in its pair against the safe haven Japanese yen - suggesting that risk-off sentiment was being dropped.

"Global markets in general are looking toward where trade goes", said Justin Lederer, an interest rates strategist at Cantor Fitzgerald in NY.

But despite the sense of caution in the markets, risk assets remained well supported as investors focused on the significant progress being made between negotiators and that a mini deal was still on the horizon.

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