Markets Eye on the First Trump-Xi Meeting

6 April, 2017

US President Trump and Chinese president Xi Jinping, are scheduled to meet today at Trump’s Mar-a-Lago resort in Florida. This is the first meeting between the leaders of the two biggest economies in the world so markets will be looking for any comments made between these 2 world leaders.

There are some sensitive issues between the US and China, such as trade protectionism, currency manipulation, South China Sea claims and North Korea’s nuclear program. President Trump stated that “if China doesn’t take actions to rein in the development of nuclear strength in North Korea then the US will act alone”.

President Xi has expressed his stance in March that the two countries should “co-operate for mutual benefits”. Xi is now facing a big challenge to show his people that he can cope with the relationship with US well. Unlike Trump’s frankness, Xi seems to be taking a more cautious stance on his comments. For both presidents, the outcome of the meeting will likely influence their prestige. Be aware that this political event will likely cause volatility for USD and outweigh the economic data performance.

The Federal Open Market Committee (FOMC) released the minutes from its mid-March meeting yesterday. The FOMC is considering shrinking its $4.5 trillion balance sheet later this year for monetary policy normalisation.

The FOMC stated that “global economic growth has increased and global economic risks were balanced, the US economy continues to perform well and close to maximum employment and inflation has reached the Fed’s target of 2% in February for the first time in five years”.

Most FOMC officials support gradual pace rate hikes. However, the fiscal stimulus is still viewed as an upside risk, therefore the FOMC will likely accelerate the pace to raise rates if they see the economy overheating. Some FOMC officials views stock prices as being too high. Per the CME’s FedWatch tool; the probability of a rate hike in June has risen from 59% to 63.1% after the release of the minutes.

The dollar index hit a 3-week high of 100.95 ahead of the release of the minutes. Nevertheless, it fell around 70 points after the minutes as the pressure at the significant resistance level at 101.00 is heavy. This morning USD rallied from the support line at 100.30 hitting the intra-day high of 100.64.

US initial jobless claims (the week ending March 31) will be released at 13:30 BST, it will likely affect USD and USD crosses. FOMC non-voting member Williams will make a speech at 14:30 BST.


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