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As reported by Bloomberg, economist Allen Sinai stated in a BloombergTV interview that softening central bank stances and easing measures by China will help spark a revival of the stock market’s recent bullish trend.

Key quotes

“With interest rates going to stay fairly low as long as inflation stays low — that’s the big surprise, low inflation everywhere — you’ve got to be bullish on stocks,” Sinai said in an interview with Bloomberg Television in Tokyo. “The equity bull market will be back. It never left.”

The swoon in stocks last quarter was essentially a recession scare, with investors sensitive to the fact the current economic expansion is unusually long, Sinai said. The U.S. is on course to exceed its longest upswing on record by mid-2019. Yet Sinai, who has worked as an economist for more than four decades and personally known Federal Reserve chairs over the years, says current conditions are more like those in the third or fourth year of an expansion — suggesting there’s plenty of room to keep going.

For now, “we’re going to get back a lot of what we lost last year” in the stock sell-off, Sinai said. Looking out over the next six to 18 months at likely policy moves, “that’s very bullish for stocks,” he said.

• Sterling takes the long way around on Brexit, trades near where it started.
• Wednesday brings a much-needed break from Brexit headlines, delivering meaningful data and a BoE appearance.

GBP/USD finds itself heading into Wednesday little-changed from Tuesday’s opening prices, trading near 1.2850 ahead of the London market for the mid-week. With Prime Minister Theresa May’s Brexit withdrawal agreement defeated in the UK’s parliament, traders are looking towards what will come next in the slow-moving exit process: the UK’s main opposition leader Jeremy Corbyn has called for a parliamentary no-confidence vote in Theresa May’s government, but the measure is unlikely to succeed with the majority of the House of Commons not interested in handing over control of the country to Corbyn, instead wishing to see Brexit finally resolved.

Odds are rising of an extension of Article 50, pushing out the final Brexit day, which means odds of a hard Brexit are declining, helping to prop up the Sterling once again. The Cable plunged to 1.2670 in the run-up to the parliamentary vote, surging shortly thereafter to 1.2890 as PM May’s divorce bill faced a landslide defeat. With the long-awaited parliamentary vote finally out of the way, traders will be looking towards an appearance from the Bank of England’s Mark Carney at 09:15 GMT today, closely followed by annualized Retail Sales for December (forecast 2.9%, last 3.2%), December annualized PPI Core Output (forecast 2.4%, last same), and most notable CPI for December, with the y/y headline figure expected to slip from 2.3% to 2.1%.

GBP/USD Levels to watch

Though the Cable survived a major Brexit vote (albeit by trading sharply in both directions), uncertainty isn’t limited to just this week, with plenty of Brexit action to follow in the coming weeks, and technical readings are skewed towards the middle as noted by FXStreet’s own Valeria Bednarik:

The GBP/USD pair now trades in the 1.2860 region, and the 4 hours chart shows that, despite the intraday slump, chances of a bearish move are limited, as technical indicators are currently bouncing from around their midlines, while the pair is settling above its 20 SMA and 200 EMA. Wide ranges and high volatility is not over, as the fact is that, after all the noise, uncertainty remains the same. The pair could keep rallying should the recovery extend beyond 1.2900, now the immediate resistance.

Support levels:  1.2830 1.2805 1.2765
Resistance levels: 1.2900 1.2930 1.2960 

China’s trade faces rising uncertainties this year, Ren Hongbin, an assistant minister at the commerce ministry said today, according to Reuters. 

Hongbin is obviously referring to the Sino-US trade, which will likely escalate if both parties fail to reach a breakthrough deal during the 90-day pause set to end on Feb. 28. 

Key quotes (Source: Reuters)

Will continue to support key provinces’ efforts to cut steel capacity in 2019
China will actively expand imports in 2019.

China vice industry minister Xin says China’s strategy to pursue high-quality manufacturing development is correct choice.

China vice industry minister Xin, asked about made in China 2025 plan, says every country has the right to pursue its own development.
 

• EUR/USD charted bearish outside candle yesterday, courtesy of Brexit vote and ECB’s dovish turn.
• The candlestick pattern signals the continuation of the sell-off from the recent high of 1.1570.
• Political uncertainty in the UK could add to the bearish pressures around the EUR/USD.

The EUR/USD pair created a bearish de reversal candle yesterday – price action engulfed Monday’s high and low – signaling a continuation of the sell-off from the recent high of 1.1570.

Moreover, the common currency tracked the British pound lower. The GBP/USD took a beating after Prime Minister May’s Brexit deal was voted down by parliament. The drop to 1.2668, however, was short-lived – the currency pair recovered lost ground to close largely unchanged on the day at 1.2859.

The EUR, however, did not follow suit, possibly due to dovish turn by the European Central Bank’s (ECB) Draghi. The central bank head warned lawmakers that the Eurozone economy is weaker-than-expected.

Draghi’s dovish comments will likely keep the EUR under pressure today. Further, a stronger pullback in CNH (rally in USD/CNH) could lead to broad-based USD strength.

Also, heightened political uncertainty in the UK could weigh over both the GBP/USD and the EUR/USD. Moreover, a no-confidence vote against PM May’s government will be held later today and, if parliament decides that it does not want the government to carry on, then it could lead to general elections.

All-in-all, the path of least resistance in the EUR/USD pair is to the downside. The bearish setup would be negated above the previous day’s high of 1.1490.

EUR/USD Technical Levels

Asian stocks lack clear direction, having rallied to six-week highs yesterday on the back of China’s stimulus pledge.

As of writing, Japan’s Nikkei index is down 0.69 percent. The Shanghai Composite is trading flat-to-positive, while Australia’s S&P/ASX 200 is reporting a 0.2 percent gain. Further, futures on the S&P 500 are up 0.2 percent.

Stocks rallied to six-week highs yesterday, as China’s stimulus talk boosted risk appetite. The world’s second-largest is planning large tax cut, Bloomberg reported yesterday. Further, the People’s Bank of China (PBOC) was out on the wires assuring markets that it would provide “enough support” to the economy.

The optimism seems to have faded, not surprisingly though, as China’s leading indicators are pointing to a deeper slowdown in the near future. Elsewhere, Germany’s growth rate in 2018 was the weakest since 2013.

Looking forward, stocks could suffer deeper losses as the anti-risk Japanese yen is gaining ground. As of writing, the USD/JPY pair is trading at 108.50, representing a 0.15 percent drop on the day.  

Economists at the US investment bank, Citi, offer their afterthoughts on the Brexit vote rejection by the UK Parliament.

Key Quotes (courtesy Reuters):      

There is now a “very high” chance that Brexit will be delayed past March 29.

“After tonight’s emphatic rejection, small tweaks won’t get the deal over the line,” 

“The probability of Article 50 extension is now very high, and the stock of Article 50 revocation is rising too.”

The EUR/USD one-month 25 delta risk reversals (EUR1MRR) are currently trading at -0.45 in favor of the EUR put options.

That reading is the lowest since Dec. 17. Put simply, the demand or implied volatility premium for put options (bearish bets) has hit a one-month high.

Notably, risk reversals topped out at -0.10 six days ago, which validates the EUR/USD pair’s drop from 1.1570 to 1.14.

EUR1MRR

• The 50- and 200-day MAs have produced a golden (bullish) crossover – a lagging/contrary indicator
• Dips, if any, could be short-lived, courtesy of China’s stimulus pledge and Brexit uncertainty.

Gold is currently trading at $1,290, having clocked a high and low of $1,295 and $1,287 yesterday, respectively.

The daily chart shows a bullish (golden) crossover between the 50- and 200-day simple moving averages (SMAs). That crossover is the product of a strong rally. Therefore, a correction could be in the offing.

The price pullback, if any, however, could be short-lived as China is stepping up monetary and fiscal stimulus efforts to support its sagging economy. The People’s Bank of China (PBOC) injected a record CNY 560 billion via reverse repo operations earlier today. Further, China is reportedly planning large scale tax cuts to boost spending.

History shows that monetary and fiscal stimulus has a positive impact on gold.

Also, political uncertainty in the UK could boost demand for the yellow metal. The odds of hard Brexit may have dropped following the decisive vote in the UK parliament against the May’s Brexit deal, however, “no confidence” vote against May’s government could lead to early elections.

Traders, however, should keep an eye on the USD/CNH pair, which is showing signs of life. A drop in the Chinese yuan could end up pushing the US dollar – gold’s biggest nemesis – higher across the board. In that case, gold could suffer a deeper drop.

Gold Technical Levels

• Crude prices getting a boost from declining US stocks.
• Hopes of Chinese cash boosting helping to spur markets forward.

Oil markets are continuing their trend higher, pushing WTI prices back over 52.00 per barrel in early Wednesday action as investors hope for continued declines in US stocks and expectations of further cuts from China to boost spending and avert a slowdown.

Expectations are rising that crude oil demand will continue to lift through 2019, and US crude oil stocks are also continuing to recede slightly, giving oil prices a chance to develop bullish momentum as OPEC production cuts continue forward, but expectations that China will cut taxes to avert further economic slowdown is seeing investors step further into risk assets, taking commodities higher and oil along with them. Fears of a global growth slowdown are centering around China, and markets are hoping for an aversion of a major crunch by the Chinese government, who have so far kept their responses to economic data to a minimum, cutting reserve ratios and utilizing reverse repo liquidity injections, and investors are hoping for more easy cash to fall from the sky via further policy action from the PBoC.

Oil has receded in recent weeks, but today’s action sees crude barrels pinning back into near-term highs, sending WTI back over 52.00.

WTI Technical Levels

Scottish First Minister Nicola Sturgeon was on the wires earlier today, via BBC News, making some comments following the Brexit vote rejection by the UK parliament.

Key Headlines:

It’s now time for a second Brexit referendum.

We cannot waste any more time.

Its time top the Article 50 clock.

Take this issue back to the electorate.

As reported by Reuters, the US Treasury Department is looking to create an exclusion process for business leaders hoping to dodge higher Chinese tariffs should trade talks between the two nations fail.

Key quotes

U.S. Trade Representative Robert Lighthizer has assured lawmakers that companies will be able to request exclusions on tariffs on $200 billion worth of goods under discussion with Beijing if talks do not yield a deal by the March 2 deadline.

Lighthizer told U.S. Senators he will extend a process of requesting exclusions that is currently only available on an earlier round of 25-percent tariffs on $50 billion worth of goods. U.S. companies currently have no recourse to seek exemption on the latest round of 10-percent tariffs rolled out in September.

If the talks don’t yield a deal by the deadline, Washington is set to proceed with higher tariff rate, which many companies have warned could cause supply disruptions.

“If the duty rate on the $200 billion tariff actions is raised to 25 percent, USTR will initiate an appropriate exclusion process,” Lighthizer said in a letter dated Jan. 11 to pro-trade Republican Senator Pat Toomey.

China has stepped up efforts to shore up its sagging economy.

The People’s Bank of China injected CNY 560 billion in the system on Wednesday via reverse repo operations – the biggest on record.

The move comes a day after the central bank assured markets of providing “enough support” to the economy. The finance ministry is reportedly planning “large tax cuts” as well, although flood-like stimulus is being ruled out, given the cost of massive stimulus tends to exceed the benefits.