Morning Commentary: Inch by Inch

Foreign Exchange - Morning Commentary
Inch by Inch
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we enter a shortened Holiday week for many in the U.S. and Canada, markets have gotten off on a somewhat optimistic footing. Positive news regarding the U.S. – China trade talks have spurred global equities modestly higher but it has been a mixed bag for other asset classes with G7 interest rates flatlining and commodities mixed; the U.S. dollar is slightly stronger against most of the major and emerging market currencies with safe have currencies and assets fractionally weaker. 

China announced over the weekend that it will strengthen its oversight of intellectual property (IP) violations which has been one of the bigger points of contention to move toward a Phase 1 conclusion of the trade talks. China announced that it will raise penalties on IP theft and even publish official guidelines. Chinese media agencies reported that the two sides are “very close” to closing out the Phase 1 deal. There has been no official reaction from the White House at this time but markets (mainly equities) are treating this as a positive step to reducing trade tensions between the biggest economies of the world and help to normalize trade again.

We have regularly pointed that the Trump Administration needs a win regarding trade as we enter the 2020 election season. There is only one party in China and all signs point toward President Xi’s strong backing from the Communist Party regarding trade and the political instability in Hong Kong.  A slowing U.S. economy and an ongoing impeachment inquiry make it paramount that the White House get a victory on trade to help make a case for another four years in office. Helping farmers get off the dole and any jumpstart to manufacturing and the industrial base can only help make that case.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Local elections in Hong Kong gave an overwhelming majority to pro-democracy candidates. They took nearly 85% of the seats compared to 25% in the 2015 vote; pro-government candidates took only 13% of the seats compared to 65% in 2015. There was a record turnout of nearly 71% of eligible voters. How the Chinese government reacts to these results remains to be seen.
  • The German IFO business survey came out near expectations and provided further guidance that the German economy is leveling off with some commentary regarding the report as evidence of green shoots. The three main indices of the survey all were stronger than in October but generally met expectations. EZ interest rates are unchanged and the euro is down for the third day in a row.
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