Thursday AM: GBP Eyes May's Trip to Brussels | EUR: ECB Dominates | USD: Imports, Exports | CAD: House Prices | NZD: Rude Financial Health

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Global markets are in chipper mood Thursday with investors grow more confident the worst of U.S.-China trade tensions are now behind them.

Asian equity markets also rallied on expectations that China will step up efforts soon to support its cooling economy.

Any good news on China tends to play well for the Australian and New Zealand Dollars; indeed we are seeing the two antipodean currencies outperform today.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8 percent, building on early gains made after British Prime Minister Theresa May survived a no-confidence vote.

The Aussie enjoys a 0.3% gain on the Pound while the New Zealand Dollar enjoys a 0.2% gain. The two currencies are up by similar margins on the U.S. Dollar.

Markets are slowly growing more optimistic on the chances of a U.S.-China trade deal after a slew of news this week pointed to easing tensions between the two powers.

Reuters reported on Wednesday that Chinese state-owned companies have bought more than 1.5 million tonnes of U.S. soybeans in the first major U.S. soybean purchases in more than six months. ...

The purchases are the most concrete evidence yet that China is making good on pledges made when Presidents Donald Trump and Xi Jinping met on Dec. 1 and agreed to a 90-day detente to negotiate a trade deal.

GBP

The Brexit saga rumbles on with Prime Minister May returning to Brussels to gather more assurances on the controversial backstop clause.

More details on what might be offered by Europe can be found here.

From a currency market perspective, we will be looking to see how generous European leaders are: if the assurances are generous in scope we believe more Conservative party rebels might be inclined to get behind their leader and support the government's deal.

While we don't see the party uniting behind the deal, nor do we see Northern Ireland's DUP getting behind the deal, we feel that there is a decent enough chance that opposition MPs ultimately get behind the deal.

Why would Labour MPs ever back Conservative party legislation?

We believe it will become clear that the legal default is a 'no deal' Brexit if a the deal fails to get through parliament. We don't see the government putting forward any alternative 'no Brexit' solutions that the opposition can get behind.

Our thinking is that when faced between voting for a deal, or endorsing a 'no deal' some opposition party moderates will get behind the deal.

Of course the political landscape is ever-changing, but that is today's theory anyway!

EUR

The European Central Bank is to dominate the calendar today with their December policy decision expected to see the Bank announce the end of its asset purchase programme with an eye to raising interest rates in Autumn 2019.

However, the ECB will be pulling the plug on the asset purchase programme against a backdrop of slowing Eurozone economic growth, which has in turn lead markets to bet the prospect of interest rate rises in 2019 are not a sure-fire thing.

This assumption has kept the Euro under pressure against the U.S. Dollar over recent weeks.

"The end of asset purchases will most likely by confirmed today, but reluctance to hike interest rates any time soon will limit the support for the Euro," says David Kohl with Julius Baer.

However, recent comments from Peter Praet and President Draghi suggest that the ECB is prepared to ‘look through’ the weakness of Eurozone growth in the third quarter.

"The ECB continues to reassure itself that the resilience of domestic demand means that the euro area should be able to produce growth around trend over coming years, sufficient in the face of a tightening labour market to justify a normalisation of policy," says Elsa Lignos, an analyst with RBC Capital Markets.

Some additional support to the economy could be announced.

Lignos says we should be on the lookout for a fresh round of TLTROs may not be forthcoming at this meeting.

RBC Capital do think the odds of fresh TLTROs are high, if not at this meeting then early next year.

"At the margin a delay in the fresh LTRO announcement may see a kneejerk positive EUR response but focus should be more on 1) an announcement on the ECB’s reinvestment strategy and 2) the staff projections which will be extended to 2021. Markets are trying to turn positive on EUR again after yesterday’s good news on Italy’s deficit target," says Lignos.

USD

U.S. data is second-tier in nature today with continuing jobless claims on tap at 13:30 GMT. A number of 1.650K is forecast by markets.

Initial jobless claims are forecast to read at 226K. A beat on expectation would likely prove marginally positive for the USD.

We will also be watching trade stats at 13:30 in light of the ongoing U.S.-China trade dispute.

The export price index is forecast to read at -0.1% while the import price index is forecast to read at -1.0%. These data don't typically tend to influence the value of the Dollar, but will factor into economic models that show where U.S. trade dynamics are heading.

Recall, U.S. President Trump is looking to boost the domestic economy by stimulating exports and reducing the country's demand for foreign-made imports. Any data that suggests the country's trade dynamics are headed in the opposite direction will only stiffen his resolve, which would have wider implications for global markets.

CAD

Housing statistics are back on the agenda with the release of the New House Price Index at 13:30 GMT.

A flat 0% reading is expected.

Why does housing matter though?

Dynamics in the sector are being watched more closely than would typically be the case in light of the cooling in the sector.

Canadian home prices fell in November for the second consecutive month as declines were seen across much of the country, data showed on Wednesday, and markets reckon this will give the Bank of Canada an excuse to pare back on the pace it intends to raise interest rates.

Recall the BoC is in the midst of a rate hiking cycle, something that tends to lend support to a currency. Easing back on that cycle would therefore work against the Canadian Dollar.

Therefore, today's data will be watched for indicators on how this story is developing.

NZD

In the half-year economic and fiscal outlook (HYEFO), the New Zealand government announced a string of fiscal surpluses, where revenue strength is more than funding upgraded spending plans.

After the unexpected pop in the surplus to +$NZ5.5b (+1.9% of GDP) last year, this year's was downgraded to +$NZ1.7b (+0.6%) due to the commencement of a substantial capital spending programme.

Further out, surpluses begin at +1.3% of GDP for 2019/20 through to +2.3% of GDP by 2022/23.

As a share of GDP expenses remain constrained at 28-29% of GDP, and net debt is projected to slide to 19% of GDP by 2021/22.

It peaked at 25.5% in 2012/13.

The fundamental dynamics underpinning the New Zealand economy are in rude health and this should provide a long-term anchor for the New Zealand Dollar.

But, does it provide the necessary impetus for a run higher in the New Zealand Dollar? Not necessarily. The strong economic dynamics of the economy are well factored into the value of NZD, and until we get a sense the Reserve Bank of New Zealand is willing to raise interest rates we would not expect the domestic picture to be a material driver of NZD value.

"New Zealand has achieved maximum sustainable employment and inflation and inflation expectations are well anchored at 2%. While we are of the view that this combination means the OCR does not need to remain on the floor at 1.75%, the RBNZ under Governor Adrian Orr is determined not to hike for the next two years. The 'soft' housing market has already triggered another round of looser LVR restrictions," says a note from the TD Securities currency desk.

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