Can Weaker US Data Make Trade Deal More Likely?

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Market Drivers December 4, 2019
Cable clears 1.3000
Sources – trade deal near
Nikkei -1.05% Dax 1.00%
UST 10Y 1.744%
Oil $56/bbl
Gold $1476/oz
BTCUSD $7262

Europe and Asia:
AU AUD GDP 0.4% vs. 0.5%
UK GBP UK PMI Services 49.3 vs. 48.6

North America:
USD ADP 8:15
USD ISM Non-Manufacturing 10:00
CAD BOC 10:00

Another night of reversal in the FX markets with majors shrugging off risk-off flows after a report by Bloomberg suggested that a phase 1 trade deal was much closer than realized and could be achieved by December 15th tariffs deadline.

It’s impossible to tell if this is an accurate description of events. It could very well be that President Trump tried to repair yesterday’s damage after his tough talk on trade sent markets reeling. One thing is clear though. The fundamental data from across the globe continue to show lackluster activity.

Last night’s Australian GDP which printed at 0.4% versus 0.5% was just the latest data point to confirm that the economic climate in G-20 remains subdued. There are no signs of sharp slowdown and activity clearly appears to have stabilized especially in Asia where Caixin services PMI came in at 53.5 versus 51.2 but the recent rally in risk is pricing in a much sharper rebound than suggested by the current data.

That’s why today’s series of US economic releases could loom large over the market as the day progresses. Today’s release of ADP and ISM Non-Manaufactrung reports could either confirm or refute the stabilization narrative. Ironically enough weaker US data could actually increase the odds of a trade deal as it would weaken Mr. Trump’s resolve as Chinese and US data points begin to diverge.

Regardless, the December 15h date now looms large in the market’s mind and if no deal gets done against a fairly unimpressive economic background the profit-taking in risk trades as the end of year approaches can be much more serious than the current environment suggests.

For now, all eyes are on the data ahead and if the numbers print better than expected, the risk-on mood that has dominated trade for the past few weeks could return with force and push USDJPY back above 109.00 level as the day proceeds.

Boris Schlossberg
Managing Director

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