Morning Commentary: Upping the Ante With China (Yet Again)

Foreign Exchange - Morning Commentary

Upping the Ante With China (Yet Again)

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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
It is no secret that the most important financial market question on most people's minds is what is happening with U.S. equity markets, and more specifically, when will the decline end?  I wish I knew that too, but in the meantime, the churn of corporate earnings in the midst of these ups and downs continue to reset expectations.
 
A little over one-third of corporate earnings mention tariffs.  Yesterday's equity sell-off was triggered by the announcement of potentially more tariffs that cover the remaining U.S. imports from China – around $260 billion worth.  The tariffs could be announced in December and implemented in February.  Of course, the Trump administration's stance is that this is contingent on if the Trump-Xi G20 meeting fails to produce some movement on a trade deal with China. 
 
The Chinese currency hit its weakest level since May 2008, touching 6.9724 yuan per U.S. dollar overnight and is obviously brushing up against the critical 7.00, a level which will bring on a lot of scrutiny which clearly China does not want.  The currency has lost 9 percent of its value in the last six months.
 
The U.S. dollar is in tight ranges overnight.  In fact, as I look at the interbank euro at 1.1373, it is exactly the same as last night's close.  I have never seen it quite like that before.  Interestingly, the Turkish lira is the strongest of an expanded major currency list, but this is primarily a result of positioning and technical factors – i.e. a snapback from oversold levels rather than anything positive from the Turkish economy.
 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Eurozone Q3 GDP came in weaker than expected, coming in at 0.2% q/q – half of the last quarter as well as what was expected.  This is the weakest growth in four years.  A stagnant Italian economy is clearly a part of that.  In addition, France grew slower than expected and the German auto industry had a tough quarter.  Part of that seems to also be linked to the trade tensions with the U.S.
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