Delay is the Word of the Day

Delays everywhere and markets like it. The US will delay its planned March 1st tariffs on China and Theresa May could be considering a Brexit delay, according to various reports. Currencies are in a classic risk-on mode, with the Kiwi and Aussie as the top performers and the USD falling against all majors with the exception of JPY. All eyes turn to Fed chair Powell's testimony on Tuesday, which will shed light on when and how it will end the sale of its $4 trillion balance sheet later this year.

Delaying US-China Trade Talks

US-China trade talks were extended through the weekend and the verdict from Trump was positive as he announced the tariffs planned for March 1 will be postponed and that a summit with Xi will be planned “assuming additional progress.”

Risk trades got a boost from the announcement, which came just after the open of markets but the moves were modest with AUD/JPY up less than 30 pips so far. Combined with the lackluster response in stock markets after upbeat trade comments from Trump on Friday, it's beginning to look like a deal is fully priced in and that there may even be a 'sell the fact' reaction once the deal is signed.

If a deal isn't fully priced in already, it will be soon. The risks may then shift to the euro and a tariff on auto imports. Trump quickly pivoted to China after he finished up on NAFTA and may now turn his attention to Europe with the Section 232 national security report in hand.

Delaying Brexit?

A different kind of delay looms for Theresa May. The Telegraph reports that she's considering a two-month delay as she attempts to quell rebellious MPs who fear the country is skirting too close to the deadline. The delay would be a backup if a newly-planned 'meaningful vote' on March 12 fails. All EU nations would have a veto on a delay and a separate report says the EU will push for a delay of up to 21 months.

The FX trade isn't necessarily clear in any of the floated scenarios. On the face of it, pushing the meaningful vote to March 12 skirts dangerously close to the March 29 deadline, but it's abundantly clear that a vast majority in parliament will never allow a no-deal Brexit. Cable has been choppy in early trading without a strong trend.