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Markets easing back to normalcy - eyes on Phase I deal! (Monday, January 13, 2020)

Asian shares paused near 19-month peaks on Monday ahead of the expected signing on a Sino-U.S. trade deal, though talks on a phase two package are likely to drag on for months. MSCI's broadest index of Asia-Pacific shares outside Japan barely budged, having hit the highest since mid-2018 last week. Japan's Nikkei was closed for a holiday. It fell sharply early last week when Iran attacked bases hosting U.S. military in Iraq, only to rally almost a thousand points when the two countries stepped back from hostilities.

Wall Street had slipped and bonds rallied on Friday when data showed U.S. nonfarm payrolls missed forecasts with a rise of 145,000, while wages and hours worked were soft.

The dollar began the week supported by optimism on the Sino-U.S. trade front, while the pound wobbled lower after weekend hints at an interest rate cut from a Bank of England policymaker.

A US-China trade deal is due to be signed at the White House on Wednesday, though talks on a phase two package are likely to drag on for months. The imminent deal, ending an 18-month trade dispute, has investors hoping for a revival in global growth. That offered support to trade-exposed Asian currencies such as China's Yuan and the Australian dollar, as well as the greenback. The mood pushed the dollar 0.1% firmer against the safe-haven Japanese yen and Swiss franc early in Asian trading hours. A greenback bought 109.56 yen and 0.9731 francs. Against a basket of currencies the dollar edged higher to 97.410 and the Chinese Yuan held at a five-month high in offshore trade. The Australian dollar held firm at $0.6898 while the New Zealand dollar was steady at $0.6636 and the euro marginally weaker at $1.1114.

Moves were constrained by caution over the trade deal, given Beijing and Washington have still not formalised the finer details of what will actually be signed. Volumes were also light owing to a holiday in Japan.

The biggest mover was the British pound, which dropped 0.2% to $1.3041 and flirted with a two-week low after dovish comments from Bank of England policymaker Gertjan Vlieghe.

He offered the latest hint at policy easing, telling the Financial Times newspaper that he would vote for a cut in interest rates later this month, barring an "imminent and significant" improvement in growth data. Futures pricing pointed to an implied probability of a rate cut at the end of the month of one-in-four.  More broadly, the morning's moves partly reversed Friday's dip in the dollar when data showed U.S. nonfarm payrolls missed forecasts, while wages and hours worked were soft.

Spot gold slipped to $1,558.84 per ounce, having hit a seven-year top last week of $1,610.90 at the height of Iran-U.S. tensions. Oil prices consolidated after suffering the first weekly loss since late November. Brent crude futures were down 12 cents at $64.86 a barrel, while U.S. crude eased 14 cents to $58.90 a barrel.