Morning Commentary: Resounding Rebuke

Foreign Exchange - Morning Commentary
Resounding Rebuke
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Ever since her election, Taiwan’s President Tsai Ing-wen has positioned herself as a defender of Taiwan’s democracy against China’s efforts to influence the island.  This positioning turned her re-election efforts into a defacto referendum on China’s efforts to gain control of the island.  

By winning ~8.2 million votes, the highest total ever collected by a presidential candidate since Taiwan started electing its president by a popular vote in 1996, President Tsai Ing-wen delivered a resounding rebuke of China’s actions.  Tsai’s margin of victory of nearly 20% marked the completion of a massive turnaround.  Roughly 6 months ago, Tsai trailed her leading challenger in the polls.  By taking an aggressive stance in supporting Hong Kong residents protesting Beijing’s rule, Tsai was able to rally against her challenger who championed closer ties to China. 

After her victory, Tsai reiterated her opposition to China’s “one country, two systems” framework that China currently uses in Hong Kong and hopes to apply to Taiwan.  However, Tsai has maintained her willingness to engage in dialogue with China as long as China respects Taiwan’s sovereignty and democracy.  For its part, China stated that it will hold talks with Taiwan as long as Taipei acknowledges that the two are part of “One China.”  Clearly these two views are at odds with each other.  Despite the resounding victory for Tsai, China’s massive economic and military influence still gives it clout in the region.  As a result, Taiwan’s ambiguous status quo is unlikely to change anytime soon.
  • The Chinese delegation arrived in Washington today with the Phase 1 trade deal expected to be signed this Wednesday.  It is expected that the deal will address commitments from China to respect America IP, increase imports from America and to not manipulate exchange rates.  Additionally, it is expected that the US and China will agree to hold semiannual talks to resolve disputes and push for economic reforms.   
  • The Iranian government admitted to accidentally shooting down the Ukrainian bound passenger jet, leading to renewed domestic protests, flipping the narrative of support for the Iranian government after the killing of General Soleimani.  With the Iranian regime forced to focus on domestic matters, the likelihood of a further escalation of conflict with the US is likely reduced.
  • The GBP is under pressure this session after comments from BoE member Gertjan Vlieghe indicating he would vote for interest rate cuts this month if there are not any signs of an improvement in the economy.  These comments come after BoE Governor Carney’s comments that the bank has plenty of firepower. 
  • UK economic data also disappointed with industrial production data coming in at -1.2% against expectations for a 0.0% print. 
  • Mexico’s gross fixed investment number disappointed with a -8.6% print against expectations for a -8.0% print.  Investment activity has been notably weak which does not bode well for Q4 GDP as well as for potential growth moving forward.  However the MXN remains resilient due to its relatively high interest rate and positive market risk sentiment.
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