Morning Commentary: China Shifts Gears – Lifts Markets Higher

Foreign Exchange - Morning Commentary

China Shifts Gears – Lifts Markets Higher

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
According to a Bloomberg story, China appears to be taking measures to shore up its economy and to offer an olive branch by lowering tariffs across the board to many of its trading partners beginning in October. In addition, China is planning to grant foreign business licenses to fully own their Chinese operations after three years in China.  China appears to be acting in its own way to reduce trade tensions without yielding directly to U.S. demands; these actions are being interpreted by the markets as a positive sign for the future.
It is not clear that the lowering of tariffs will include the U.S. at this time, but it does show that China is willing to make concessions but will not be bullied or intimidated into doing so. Markets have reacted positively to this news with global equities, interest rates, commodity prices, and emerging markets all moving higher. The U.S. dollar is lower led by many European currencies and commodity linked currencies. Some emerging market currencies are up over two percent today.
  • Norway has raised interest rates for the first time in seven years by 25 bps to 0.75%. The interest rate hike is being interpreted as dovish in the sense that markets had been anticipating a more aggressive signaling of future interest rate hikes and the central bank did not deliver on that commitment. The Norwegian krone is up fractionally on the session.
  • The British pound is outperforming this morning, up by nearly one percent on the back of better than expected August retail sales. Retail sales rose by 0.3% bringing the YoY rate to 3.3%.
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