US China reconciliation stutters

20 November, 2019

Asian stocks are painting a sea of red, as investors grow skeptical that the US and China can exhibit enough will to sign a limited trade deal by next month. Most Asian currencies are now also weaker against the US Dollar, while safe havens such as Gold and the Japanese Yen are advancing.

Given that the US Senate has just passed legislation in support of the Hong Kong protests, such a move threatens to drive a wedge into ongoing US-China negotiations while potentially raising the barrier to a trade deal. Considering that the US and China are struggling even to agree to “phase one”, which had been deemed as more digestible, hopes for a swift conclusion to the trade conflict have clearly been misplaced. The drawn-out nature of “phase one” only points to bigger obstacles ahead, if and when trade talks enter phase two. In order to maintain the current levels of risk appetite in the markets, trade talks must bear fruit soon, or risk investor focus shifting back to the gloomy economic data, as further evidenced by Japan’s October exports seeing its sharpest drop in three years.

Pound offers lukewarm response to Johnson-Corbyn debate

GBPUSD offered a tepid immediate response to the first televised debate of the current UK election campaign, while the Pound is now weaker against most Asian currencies. The historic exchange between Boris Johnson and Jeremy Corbyn presented scarce fresh insights, with the snap poll following the debate suggesting that there was no clear winner, which offered Pound traders little to hang their hats on.

With Sterling’s latest assault on the 1.30 level versus the US Dollar falling short yet again, the currency pair had moderated in the hours leading up to the debate, before settling just above the 1.29 mark at the time of writing. The Pound has also come off its strongest level against the Euro in six months, only to post slight gains versus the bloc currency during the debate. Over the next three weeks, expect the Pound to remain primarily swayed by the political nuances during this campaigning period.

Gold gains as markets begin to doubt trade deal prospects

Gold has broken back above the $1470 psychological level, amid dimming hopes of a US-China trade deal. Bullion is expected to end the year with its double-digit annual gain intact, even in the event of a signed limited US-China trade deal. While not a base case for most investors at present, a complete capitulation in ongoing trade talks should send Gold surging back above $1500 while potentially paving the way for a global recession.

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