Crude Oil Prices May Focus On US, China Trade Talks For Direction

A lull in top-tier relevant event risk and a deluge of incoming developments translated into uneven performance for benchmark commodities. Gold prices rose – shrugging off a modestly stronger US Dollar – as Treasury bond yields declined despite the absence of a clear lead from sentiment trends.

Crude oil prices jumped after US Treasury Secretary Steve Mnuchin said in an interview with Bloomberg that further sanctions on Venezuela are being considered. That appeared to amplify supply concerns touched off by political turmoil amid dueling claims on the country’s presidency.

FOMC AND US GDP DUE, US-CHINA TRADE TALKS MAY PROVE PIVOTAL

An action-packed session in the hours ahead features a first look at fourth-quarter US GDP data as well as an FOMC policy announcement and press conference with Chair Powell. Traders are also eyeing soundbites from the sidelines of US-China trade talks as Vice Premier Liu He visits Washington DC.

PMI survey data endorses the idea that growth slowed in the last three months of 2018 but outperformance relative to forecasts hints it may moderate less than economists envision. As for the Fed, it may cite the recent disruption in data flow courtesy of the US government shutdown to justify a status-quo stance.

If so, positive cues for market sentiment from a modestly upbeat GDP print might be offset as investors interpret the Fed’s reluctance to consider dialing back quantitative tightening (QT) as mildly hawkish. On balance, that leaves the trade talks as the tipping factor sentiment trends.

Mr Mnuchin also said he expects meetings with Chinese delegation to yield “significant progress”. That echoes hopeful comments from the Trump administration’s top economic adviser Larry Kudlow but clashes with remarks from Commerce Secretary Ross, who said the two countries are “miles and miles” apart.

For their part, investors will want to see concrete steps toward de-escalation. If what they see instead are vague pronouncements couched in empty niceties, a sense of disappointment might emerge. That would bode ill for risk-geared crude oil.

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