The Week Ahead: Winter is Coming?

Winter is Coming? Share this story: Andrew Kositkun Foreign Exchange Head Trader This past week, it was reported that a resolution to the U.S.-China trade war could come by late May/early June.  Assuming a successful conclusion to talks with China, it is important to remember that the U.S. is still engaged in trade "fights" with most of the remaining major economies.  So where do we go from here?   NAFTA While the leaders of the U.S., Mexico and Canada have agreed to new trade deal, the legislative bodies in the respective countries have yet to ratify it.  Threats from the U.S. Administration has hit support in Mexico, and Canada has reiterated its opposition to renegotiations, something Democrats are looking for.  Moreover, both Mexico and Canada want the existing steel and aluminum tariffs removed.  In the end, ratification of the deal is expected but it likely won't be a smooth road.   Japan In September, the two countries agreed to refrain from auto tariffs as long as negotiations are ongoing.  The first round of talks were finally held this past week with both sides entering the talks far apart.  The U.S. has a long list of demands while the Japanese are trying to focus on a few items such as agricultural products.  While Japan did concede to the U.S. by adding "voluntary" auto export quotas back in the 80s, Japan is in a stronger negotiating position this time around.  A possible solution would be for Japan to purchase further agricultural products that could be presented as a win for U.S. farmers.     EU In a similar manner with Japan, the U.S. is seeking a unilateral reduction in European trade barriers with the U.S.'s main goal to reduce the bilateral trade deficit.  Case in point, the U.S. has demanded that the EU lower its 10% tariff on auto imports but has not offered to lower its 25% tariff on light trucks.  Notably, less ambitious trade demands from the Obama Administration were not met during the Transatlantic Trade and Investment Partnership negotiations.  This signals scope for limited agreements with the EU.  Clearly a trade deal with China will be warmly welcomed by the markets.  Given this, trade wars are a key component of the President's anti-globalization platform.  With numerous trade issues outstanding against numerous trading partners, expect trade conflicts to remain an issue for the foreseeable future. However, expect market and political/election considerations to keep the magnitude in check.  MAJOR CENTRAL BANK ACTIVITY THIS WEEK 4/24 Canada Expectations for rates to remain unchanged at 1.75% 4/24 Japan Expectations for rates to remain unchanged at -0.10% 4/24 Indonesia Expectations for rates to remain unchanged at 6.00% 4/25 Sweden Expectations for rates to remain unchanged at -0.25% 4/26 Russia Expectations for rates to remain unchanged at 7.75% KEY MARKET MOVING ECONOMIC RELEASES United States and Canada 4/22 Existing Home Sales Expectations for a decline from 5.51m to 5.30m 4/23 New Home Sales Expectations for a decline from 667k to 647k 4/26 Q1 GDP Expectations for a print at 2.2% Europe/Eurozone 4/24 German IFO Biz Index Expectations for a slight improvement in expectations Asia/Japan, and New Zealand 4/25 Japan Jobs Report Expectations for the UR to tick higher from 2.3% to 2.4% 4/25 Tokyo CPI Expectations for the YoY to move higher to 1.1% 4/25 New Zealand Trade Expectations for a slightly larger trade deficit FORECASTS EUR The EUR continues to consolidate largely between $1.1200 to $1.1500 since the middle of November. Short term trends continue to alternate between a bullish and bearish bias lasting a few days to a week or so ad nausea despite overwhelming negative economic data out of the EZ relative to the U.S.  Continue to expect more of the same narrow range trading this week.  GBP It is hard to put into words the complexity and nuances of the Brexit negotiations and the impact on the GBP as the Parliamentary process drags on and on. The U.K. is deeply divided on this issue and Parliament reflects that schism making it difficult to resolve many of the key divisive issues. Markets continue to remain modestly constructive and optimistic for a deal as the deadline has been extended to October 31.  Parliament is on recess until next week; expect more range trading. JPY While the correlation between the JPY and “risk-on” or “risk-off” strategies is not as strong as in 2018, the correlation remains workable and bears monitoring. The JPY rose sharply during December as equities and interest rates cratered; as stocks have rebounded along with interest rates in the New Year, the JPY has weakened. With equities and interest rates correlating again and leading to higher yields, the JPY has weakened over the past month. Expect further consolidation this week. CAD RBC, our mothership, had forecast a range for the CAD for Q1 of 1.3600/$ to 1.3100$; at the time they made that forecast in December, the CAD was very weak and had been on a sharp downtrend.  Since the beginning of the New Year, the CAD has rebounded but settled into a range of 1.3450 – 1.3250/$ and even a tighter range over the past four weeks. Expect more of the same this week. CNY The CNY has been benefiting from a number of fronts since the beginning of the year. The Chinese government and central bank have been using all monetary and fiscal means possible to keep the economy liquid and afloat. Continued positive expectations surrounding a successful conclusion to the U.S. – China trade deal also spurred demand for CNY. Over the past weeks, the CNY has consolidated its gains as the trade negotiations drag on; expect more sideways trading until more news is known about the trade negotiations.  AUD The AUD reflects the recent bipolar nature of global equities, interest rates, and commodity prices and trends. December was a “risk-off” month and the Aussie weakened sharply reflecting all that pessimism. January, February, and March saw global equities and commodities rebound smartly, but the Aussie has reaped little of those benefits. Market concerns remain strong that the RBA will still potentially cut interest rates in the near term undermining the benefits of stronger commodity prices and equities. If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos! Follow City National Bank on social media: Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC