FX.co ★ Reducing tension stimulates the demand for risky assets

Stock indices continue to grow steadily against the background of two positive news that noticeably reduced tensions — reaching agreement between Republicans and Democrats in Congress, virtually eliminating the new government shutdown, and the willingness of negotiators on a trade agreement between the US and China to find a solution before March 1, when the 90-day delay in the entry into force of new import tariffs will be completed.

The agreement has not yet been signed by Trump, but there is still time before Friday, and the markets assume that the remaining small differences will be settled.

The S & P 500 index closed at a two-month high of 2744.73, the Shanghai Composite grew even more impressive, to 2718, which is the best result since October. Growth has accelerated amid reports that Trump is ready to move the conclusion of the trade agreement in order to find time for a personal meeting with Chairman Xi. This statement is regarded by the markets as a factor indicating a high degree of likelihood of a compromise.

The US small business sentiment indicator fell by 3.2p in January to a two-year low, actually returning to the level before the 2016 elections. The share of companies expecting improvement in the next 6 months decreased by 6%, and this is the minimum since October 2016, the uncertainty sub-index is near record marks for 45 years, the merit is almost entirely on the conscience of Congress, which created the conditions for stopping the work of the government.

Such a result cannot be described as a collapse, as the business still relies on high demand and, accordingly, continues to maintain a high level of capital expenditures, however, the reversal seems to have already occurred.

Meanwhile, the US national debt exceeded 22 trillion, it took only 11 months to add a trillion to the previous record. Partially, the record growth is explained by the decrease in tax revenues due to the launch of the reform program, partly due to the growth of budget expenditures on military and social needs, but the fact remains that the growth rates of public debt substantially outpace the growth rates of the economy.

In general, the situation is in favor of a gradual reduction of tension, which encourages players to switch to risky assets. The trend will lead to a decrease in demand for the dollar, euro, and bonds, the weakening of the dollar with a decrease in risk will contribute to higher prices for raw materials, primarily oil, and for gold.

EURUSD

The head of the Bundesbank, Jens Weidmann, said on Tuesday that the economic downturn was dragging on more than expected, but we need to stick to the medium-term inflation forecast. Markets interpreted Weidmann's comment as an indication of the ECB's position - to observe without interfering, which is quite convenient for the bulls, ready to resume purchases.

The decrease in demand for the dollar gives the euro a chance to regain some of the losses, today a slight increase is likely, the immediate goal is the resistance zone of 1.1373 / 78.

GBPUSD

The head of the Bank of England Mark Carney, speaking at a press conference organized by the Financial Times, said that Britain's withdrawal from the EU without a full-fledged agreement would have serious negative consequences for the British economy. One of the main alarming factors Carney called a noticeable decrease in capital expenditures of companies after the referendum, repeating one of the key concerns of the last quarterly report on inflation.

The pound will not be able to return to the growth trajectory without clarity by agreement. Today, trade is more likely in the side range. The local minimum reached yesterday at 1.2830 is unlikely to be updated today, a bit more likely to move to the upper limit of the 1.2995 range.