Morning Commentary: President Trump – Front and Center

Foreign Exchange - Morning Commentary
President Trump – Front and Center
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we arrive this morning, markets are attempting to recover from the negative market reaction yesterday to the continued violence in Hong Kong and the uncertainty on a time table for a U.S.-China trade deal. Asian equities are rebounding from yesterday’s losses and European equities are also in green territory while G7 interest rates are nearly unchanged and the U.S. dollar continues to consolidate for the third day in a row.

With little major economic data out of the U.S. today, President Trump’s speech before the Economic Club of New York at 9:00 am PST will be the main event for the markets today. Markets and investors will be keenly watching and listening for any new signals or guideposts related to the progress and time table for a U.S.-China trade deal. Markets are also anticipating that President Trump may again delay the imposition of tariffs on European automobiles as European auto manufacturers have recently highlighted plans to use more American suppliers to avoid the tariffs.

Equity markets in particular have shown amazing resiliency to the lack of concrete progress on the U.S.-China trade talks and remain hopeful for a breakthrough deal. The bond market has not shared the equity market’s optimism but has recovered as yield curve inversion has temporarily abated and U.S. and G7 interest rates have rebounded higher over the past weeks. The U.S. dollar (DXY) is basically unchanged since August and continues to reflect the mini-cycles of either “risk-on” or “risk-off”. Today, depending on what President Trump says or does not say, we could see some significant market movements through all asset classes.
  • Hong Kong protests are now in their 23rd week with continuing protests and more violence. Reports that the city is being pushed to “the brink of a total breakdown” are impacting local and regional markets as China attempts to subdue and contain the violence. How heavy a hand China chooses to use could impact China’s relations with the U.S. and other countries.
  • The British pound is the top performing major currency since Friday’s closing. The Conservatives (Tory party) and PM Johnson got a boost yesterday on news that the Brexit party will not run against them in the upcoming election on December 12. The U.K. jobs report was a mixed bag with the UR dropping from 3.9% to 3.8%, however for the second three-month account period in a row, employment dropped again. U.K. interest rates are unchanged.
  • The German ZEW business survey report for November is showing some signs that the German economy is stabilizing with some commentaries going so far as to report mini-green shoots emerging. While the overall report was slightly worse than market forecasts the key expectations component within the report widely beat expectations at -2.1 against forecasts of -13; this is also widely better than October’s -22.8. The euro was little affected and traded in a narrow overnight range.
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