Morning Commentary: Darkest before the Dawn

Foreign Exchange - Morning Commentary
Darkest before the Dawn
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Last Friday, trade tensions between the U.S. and China ramped up another notch with the U.S. more than doubling the tariffs it is imposing on $200 billion of Chinese goods.  While there will be costs incurred to both economies, the ramifications will not be limited to just these two countries. 
 
Given the large exposure that the European economy has to global trade, renewed trade friction puts the expected recovery in Eurozone GDP at risk.  But, the immediate concern revolves around the possibility of automotive tariffs on EU auto exports. 
 
Part of the reason that the markets were discounting the possibility of trade escalation was the belief that President Trump would be more strategic with the stock market ahead of the 2020 presidential election.  As a reminder, it was expected that any trade deal would be an executive agreement that would bypass the need for congressional approval. 
 
With that assumption disproven, it warrants a reassessment of U.S. trade policy with the EU.  The Section 232 investigation, which evaluated the security threat posed by European auto imports and provides cover for Trump to impose automotive tariffs, requires a decision by May 18.  In light of past actions and Trump’s own comments, the probability that these tariffs go into place has risen materially.
 
This renewed threat comes at an inopportune time for Europe.  While there have been positive economic surprises out of Europe, German data continues to lag with manufacturing data declining for eight consecutive months.  As the largest automotive manufacturer in Europe, Germany stands to be the most negatively impacted European economy at a time when its economy remains in a precarious state. 
 
While U.S. negotiators have been invited to China to continue talks, markets appear to be more focused on the G20 meeting in Japan at the end of next month.  At the G20 meeting in Argentina last year, a meeting between President Trump and Xi resulted in a de-escalation of tensions.  Ultimately, trade remains a very fluid conversation with a lack of clarity surrounding a variety of variables behooving market participants to pay more attention than implied volatility from just two weeks ago would suggest.    
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • China has raised tariffs in retaliation to the U.S. actions last week.  According to a statement from China’s Ministry of Finance, the country will raise tariffs on part of a list of $60 billion of U.S. goods.  Additionally, it has been reported that China is investigating other non-tariff measures. 
  • In the U.K., polling shows that the probability of the Conservatives forming a government after the next election is lower than it has been at any point of this parliamentary session.  However, this GBP negative news was blunted by a falling probability of early elections.
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