Risk FX Explodes on Positive US China Trade Speculation

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Market Drivers November 7, 2019
Risk explodes on possible cancellation of tariffs
BOE meeting in focus
Nikkei 0.11% Dax 0.80%
UST 10Y 1.87%
Oil $57/bbl
Gold $1483/oz
BTCUSD $9179

Europe and Asia:
EUR EU forecast downgraded

North America:
GBP BOE on tap

Risk FX exploded in the afternoon Asian trade today after China’s commerce ministry stated that it was ready to negotiate on how much tariffs can be canceled.

The headline helped spark a rally in USDJPY which rose above the 109.00 figure and firmed up bids in Aussie which was trading above .6900 in morning London dealing.

The news suggests that both sides are clearly close to a phase one deal and that China, which is suffering through a serious protein shortage due to the spread of disease in its pig livestock is eager to lower agricultural tariffs and open up trade flows once again.

The US-China trade story has had almost as many ups and downs as the Brexit battle but barring any fresh headlines that would cast doubt on progress made, the news today indicates that phase one deal may be complete and that should provide a positive open for US equities and keep risk pairs well supported into North American open.

Elsewhere the focus will be on BoE meeting at 12:30 GMT today. This will be Mark Carney’s final meeting as BoE governor and new Governor is yet to be appointed for a term starting February 2020. The appointment will also be complicated by the outcome of UK elections which could upend the current government though that seems unlikely for now.

In the meantime, the market will be keenly eyeing any forecast about UK growth and inflation which may be downgraded in the wake of Brexit uncertainty. In recent months UK economic performance has deteriorated significantly threatening to undermine the message of normalization that UK monetary authorities have been trying to stress.

If Mr. Carney admits that the low-interest-rate environment will need to persist for the foreseeable future and if the central bank downgrades its outlook for 2020 cable could test the 1.2800 figure as the day proceeds.

Boris Schlossberg
Managing Director

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