U.S.-China Trade War: Separating Fact From Fiction
Ashraf Laidi | Dec 05, 2019 08:45AM ET
It's impossible to separate fact from fiction with all the noise in the China-U.S. trade talks, but a report this week was notable for an intriguing detail: CAD and GBP are leading the gainers for the second consecutive day, while NZD powered ahead after the RBNZ confirmed rates would remain on hold.
The two-day OPEC meeting gets underway today. U.S. jobless claims and durable orders are due next. Below is the chart highlighting the improving correlation between EUR/USD and the Eurozone-U.S. spread of their respective economic surprises, using the Citi econ surprise index.
The ebb and flow of U.S.-China trade talks are relentless, yet fruitless. Early in the week, there was skepticism but it turned on Wednesday on a report saying there was progress. However, a report from earlier in the week was notable for fresh details. It said that Trump's son-in-law Jared Kushner had gotten involved in the U.S.-China trade talks.
Normally that would be a meaningless detail but Kushner got involved late in NAFTA talks when it looked like they could go off the rails. He eventually brokered a deal where Canada would give up some dairy market access in exchange for maintaining trilateral dispute resolution panels.
"I've said before, and I'll say again, this agreement would not have happened if it wasn't for Jared," U.S. negotiator Lighthizer said after the deal was announced.
Kushner is one of the few people Trump trusts and is said to act as an interpreter for what Trump is willing to accept in a final deal. We cannot say with any confidence that this is a genuine sign we're in the final stages, but it's worth considering. At the same time, we fear that even if there is a deal it will be superficial at best with the risk of a sell-the-fact reaction.
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In more-concrete news, the Bank of Canada followed in the RBA's footsteps with an upbeat take on growth and the global economy. That sent USD/CAD a full cent lower.
In the UK, the bleeding has stopped for Conservatives in the polls as they stabilize with roughly a 10 point lead, something that would mean a comfortable majority. That news and the breakout of a bull flag on the chart led to a +100 pip rally in cable.
Looking ahead, the two-day OPEC meeting gets underway in Vienna today. The leaks and reports have already been too many to count. Talk has ranged from Russia balking at any commitments to a deeper cut. The baseline is for a 3-6 month extension of current quotas but expect it to be accompanied by fresh commitments to meeting the current quota from the countries that are over-producing. The technicals will tell the story and it will take a clean break above recent ranges in WTI and Brent to leave a lasting impression.
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