Morning Commentary: The Final Countdown

Foreign Exchange - Morning Commentary

The Final Countdown

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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
U.S.-China trade talks in Washington D.C. concluded on a positive note last week, leading the Director of the National Economic Council to note that the two countries are "closer and closer" to a trade deal.  Per Chinese news sources, the two countries discussed the text around an agreement surrounding technology transfers, intellectual property protections, non-tariff measures and enforcement.  These issues are seen as the most difficult topics to resolve in order to reach a deal. 
 
However, despite these positive headlines, there remains significant work to be done.  As recently as a month ago, President Trump was talking about holding a signing summit with President Xi but such a summit has yet to be announced.  Moreover, U.S. Trade Representative Robert Lighthizer has signaled that many obstacles remained, a comment illustrative of the back and forth nature of these trade talks.  Nevertheless, the feeling in the markets is that talks are in the final stages with the main question being when, rather than if, an agreement will be reached. 
 
Unfortunately, the same sort of optimism doesn't characterize Brexit talks as rallies to the GBP on positive headlines have been getting smaller and smaller.  In the near term, the key events will be the EU Council Meeting on April 10 and the evolution of cross party talks as well as further indicative votes in Parliament.   
 
PM May has indicated that the U.K. stands ready to pass the European election legislation needed to qualify the country for a longer extension, but it is quite possible the EU members only grant an extension to May 22, despite a request from PM May for an extension to June 30, when they meet this Wednesday.  Additionally, markets will be tracking progress on talks between the government and the Labour party.  If the government and Labour are able to make progress, it should raise the prospects of an even softer Brexit.  Conversely, these cross party talks also raise the possibility of snap elections that could be GBP negative should the elections bring to power a more hard-core "Brexiteer," a fitting illustration of the volatility of these talks and the polarized nature of possible outcomes.  
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Kirstjen Nielsen resigned Sunday as homeland security secretary, adding wrinkle to administration's immigration agenda.  U.S. Customs and Border Protection Commissioner Kevin McAleenan has been named as acting homeland security secretary.
  • ECB meets again this Wednesday.  The markets are not expecting a change in rates although a discussion is expected to be had over the impact of negative interest rates on the banking sector.  As the central bank is already changing its forward guidance in March, not much substance is expected at this meeting. 
  • Crude oil has rallied to its highest level in nearly 5 months as an escalation in fighting in Libya has increased concerns over supply. 
  • China reported solid FX reserve data with its foreign currency holdings rising for a fifth straight month with reserves increasing by $8.6 billion to $3.10 trillion. 
  • Israel left its benchmark rate unchanged at 0.25% as expected.
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