Morning Commentary: Tightrope

Foreign Exchange - Morning Commentary
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
This weekend, Taiwan heads to the polls for its general election.  For background, Taiwan finds itself in a unique position as it has many of the signs of statehood—a constitution, an army and a democratically elected government—but lacks universal acknowledgement of its independence.  The reason for this is that China still claims the island as part of its territory and resists any recognition of Taiwan’s independence.   

Back in 2016, President Tsai Ing-wen and her Democratic Progressive Party won the election in a landslide.  However, in 2018, her party suffered heavy defeats in local polls.  Since then, she has enjoyed a bounce in support that some attribute to China’s hardline response to the situation in Hong Kong and increased pressure on Taiwan.  During Tsai’s first term, China has launched regular patrols around the island and pressured global companies to recognize China’s claim. 

Against this backdrop, the Taiwanese situation is framed as a battle between pro-independence forces and those wanting unification with China.  However, the reality is that polling data consistently shows that most Taiwanese support maintaining the status quo of peaceful ambiguity.
  • The US jobs report came in slightly under expectations, printing 145k against expectations for a 160k print.  Additionally, last month’s number was revised down to 256k from 266k.  This report caps a 10th straight year of payroll gains, the longest stretch of gains in the 80-year history of this data series.  The unemployment rate stayed at 3.5%, which is a 50-year low and wage growth disappointed, rising only 0.1% against expectations for a 0.3% gain, however last month’s wage gain was revised up to 0.3%.  This smaller than expected wage growth lines up with yesterday’s comments from Federal Reserve Vice Chair Clarida that the labor market isn’t putting excessive pressure on inflation.  Overall, while the headline number was technically a miss, the underlying labor market fundamentals remain solid. 
  • Canada’s jobs report significantly beat expectations, rising 35.2k against expectations for a 25.0k gain.  This represents a strong bounce back from last month’s disastrous number.  Additionally, the unemployment rate dropped to 5.6% from 5.9% last month. 
  • November retail sales in Australia beat estimates at 0.9% versus estimates for a 0.4% gain.  There was particular strength in discretionary.  This raises some risk of a large reversal in December as Christmas spending fell into the November number.
  • In the UK, the House of Commons passed the Withdrawal Agreement Bill which will now move to the Lords on Monday where it will also be passed.  The rest of 2020 will be focused on negotiating a free trade agreement with the EU.
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