Morning Commentary: The Art of War vs. the Art of the Deal

Foreign Exchange - Morning Commentary
The Art of War vs. The Art of the Deal
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
U.S. equities are opening sharply lower this morning, continuing the selloff in Asian and European equities.  The risk off sentiment that is characterizing the markets were driven by a couple of factors—U.S. warships in the South China Sea, North Korean live-fire military exercises and threats from President Trump to escalate tariffs on China. 
 
Focusing on tariffs, President Trump indicated that the 10% tariffs that the U.S. has on $200 billion worth of imports from China could rise to 25% as of Friday, May 10.  According to the President’s tweet, “the Trade Deal with China continues, but too slowly, as they attempt to renegotiate.”
 
While recent headlines around trade talks have been constructive, we have been flagging the difficult nature of U.S.-China trade talks.  Unlike trade talks with other trading partners, which mainly revolve around terms of trade, trade talks with China involve more structural issues that are much harder to solve.  While it’s unclear what the Chinese are attempting to renegotiate, it is likely that the removal of existing tariffs and/or these key structural issues (IP theft, forced technology transfer) are at the heart of the matter.  Ultimately, the net result is increased uncertainty. 
 
It remains unclear whether or not the president will go through with his threats as the threat of tariffs to win concessions is a familiar negotiating tactic and history has shown a willingness to extend deadlines.  Additionally, there have been conflicting reports over whether the Chinese trade envoy will still travel to the U.S. for talks scheduled to start this Wednesday.  Even if the Chinese do continue with plan talks, Beijing would not want to give the impression of giving in to U.S. pressures while negotiating under threat.  In short, risks have risen and the evolution of events over the next few days have taken on increased importance. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The PBoC announced a targeted required reserve ratio (RRR) cut for small and medium sized banks effective May 15.  While we acknowledge the proximity of this cut to President Trump’s tariff threat, this RRR cut is consistent with the continued implementation of previously announced polices. 
  • Final Eurozone services and composite PMIs came in stronger than expected with services PMI coming in at 52.8 and composite PMIs finishing at 51.5.   
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Fidelity: Bollinger band stock signal

Viewpoints: What to do after a data breach