Playing the waiting game on the potential US-China trade deal

Marius Paun | London, UK | Senior dealer | Friday, 29th November 2019

Early in the week, Chinese newspaper Global Times put out a tweet saying that a broad agreement on phase one has been reached but there is still a difference of opinion on how much tariffs should be rolled back. To ensure that nothing in these negotiations goes smoothly, a bill on Hong Kong human rights that will automatically turn into law on December 3, was signed by the US. No surprise that China strongly condemns the act. All of which leaves some analysts baffled, especially in regards to the timing of the US actions.

What is interesting is that Hong Kong Government said it “strongly opposes and regrets the US president signing the bill of backing protesters”. On the face of it, they are still taking the China official view and are yet to be influenced by the recent election results.

Meanwhile, in the US, there were a number of the Federal Reserve members saying ‘the monetary policy is in the right place now’. Furthermore, the Beige Book, which is meant to give a snapshot of how the overall economy is doing, says the outlook remains generally positive. Consumer spending is growing at a stable to moderate pace with employment rising slightly.

As we approach general election day in the UK, scheduled for December 12, it probably makes sense to keep a close eye on the polls. One recent poll done by YouGov puts Conservatives in front at 42% versus Labour at 30%. And the view is that as long as the difference between the two stays within double digits, then expect the pound sterling to remain bid. A case in point for the past week with GBPUSD moving slightly higher, currently trading above 1.29.

Over to Europe where German manufacturing is still mired in contraction territory. However, there is fresh optimism that Christmas shopping might just offset part of those negative effects.

Elsewhere, Ursula von der Leyen has been officially confirmed as the next European Commission President. One of her priorities is combating climate change, which definitely does not match US President Donald Trump’s views on the issue. And her monetary policy dovishness doesn’t bode well with German Chancellor Angela Merkel. Damn if you do damn if you don’t. The EURUSD has closed the week rather flat, just above the 1.10 mark. Reduced liquidity in the forex market due to Thanksgiving Bank holiday in the US probably contributed to trading remaining locked in a tight range.

The Australian dollar moved slightly down for the week after assurances from the Reserve Bank of Australia’s Governor Phillip Lowe that his country is not considering QE-quantitative easing…. unless the cash rate gets to 0.25%. And surprise-surprise Westpac put out a prediction shortly after, saying the cash rate will be cut to 0.25% by June 2020, with QE to follow.