Breaking News
0

Not Everyone Buys The Trump-Xi Trade Truce

By Kathy LienForexDec 03, 2018 16:59
ca.investing.com/analysis/not-everyone-buys-the-trumpxi-trade-truce-200197963
Not Everyone Buys The Trump-Xi Trade Truce
By Kathy Lien   |  Dec 03, 2018 16:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Daily FX Market Roundup 11.29.18

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

By now, everyone knows that President Trump and President Xi agreed to a 90-day trade truce in Argentina. With this agreement, there will be no imminent threat of additional tariffs until March 1. Currencies and equities gapped higher as investors who feared the worst found the outcome satisfactory. However, aside from the initial move at the open, there was no continuation or additional gains during the North American session for stocks, the U.S. dollar or high-beta currencies. This tells us that investors were not impressed by the “deal.” The 90-day clock starts on January 1 and during this crunch time, a deal must be reached or the White House will proceed with raising tariffs to 25%. The agreement requires that China must make substantial purchases of US goods immediately to reduce the trade imbalance and according to US Senior Economic Adviser Larry Kudlow, they have ballpark commitments of well over $1 trillion. He also expects China to remove tariffs on US car imports immediately. Of course none of these commitments has been publicly confirmed by President Xi. The good news is that for over 2 months, we’re probably going to hear more conciliatory headlines from both sides as they press the gas on negotiations. This will be good for risk appetite, equities and currencies. As we get closer to the deadline, however, the tone could shift – especially if they are far from an agreement. So while there are many who are not convinced that the Trump-Xi trade truce will turn into a trade deal, for the time being, it will help rather than hurt USD/JPY, EUR/USD, NZD/USD and other high-beta pairs that are sensitive to risk appetite.

The Australian dollar benefitted the most from the trade truce but like many other major currencies, its rally peaked at the London open. In this case, though, investors were reluctant to take the pair higher ahead of the Reserve Bank’s monetary policy announcement, especially after Sunday night’s economic reports showed vulnerability in the economy. Manufacturing activity slowed materially according to the PMIs, inflationary pressures eased, job ads are down, corporate profitability is weaker and building approvals fell. These reports give the RBA good reason to maintain its neutral monetary policy stance. In the past, the RBA has been slightly optimistic and it will be interesting to see if this sentiment changes because the positive turn in trade talks offsets the deterioration in data. The following table shows how Australia’s economy has changed since the RBA’s last meeting and while labor-market activity and consumer confidence is up, most of the business indicators are down.

AUD Data Points
AUD Data Points

The New Zealand and Canadian dollars also traded higher with the loonie rising on the back of the 4.4% recovery in oil prices. Monday's big story was Qatar’s decision to pull out of OPEC. Although they are one of the smallest oil producers within the organization, its departure raises concern about the viability of the entire cartel. Its announcement comes days before a highly anticipated meeting where oil-producing nations are expected to reduce production in an effort to reverse the 20% slide we've seen in crude prices over the past 6 months. While USD/CAD ended the day off its lows, we believe that the pair will continue to move lower ahead of the Bank of Canada’s rate decision.

It is also important to mention the change in US data scheduling this week. Due to the U.S. national day of mourning for President George H.W. Bush on Wednesday, all of that day’s US economic reports such as ADP and the ISM non-manufacturing index will be delayed until Thursday. US equity and bond markets will be closed but the Beige Book report will still be released at 2pm ET on Wednesday. Fed Chair Powell also canceled his congressional testimony to Congress. The hearing will be rescheduled, but a new date has not been set. This was a highly anticipated meeting because investors are eager to see if Powell clarifies his comments about interest rates last week.

Euro ended the day higher versus the US dollar after some headlines suggested that Italy could scale back its deficit plans. Sterling, on the other hand, failed to participate in Monday’s risk rally despite stronger-than-expected manufacturing data. As our colleague Boris Schlossberg noted:

traders ignored the news as Brexit woes continued to dog the pair on reports that as many as one-third of PM May’s party may vote against her deal on December 11.

Not Everyone Buys The Trump-Xi Trade Truce
 

Related Articles

Not Everyone Buys The Trump-Xi Trade Truce

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email