Aside positive headlines coming from China’s effort to ensure stricter penalties against intellectual property violations, it appears that an interim trade agreement is not on the agenda anymore this year despite US President Donald Trump's comment on Friday that a deal with China is “very close”.
We would rather consider that the latter should be used as a leverage in the 2020 election campaign race to maintain the support of critical rural voters in a timely manner, although the scope of a potential “phase one” trade agreement would probably remain limited.
The chances of resuming discussions on major issues related to intellectual property, technology transfer and the enforcement mechanism for implementing structural reforms in China discussed in March 2019, a key part of the “phase two” agreement, is probably in oblivion as Chinese negotiators are expected to wait for US elections results due on 3 November 2020 before resuming talks.
Safe haven USD should therefore stay in demand as trade headlines should stay high while the US administration is expected to sign the Hong Kong Human Rights Democracy Act legislation passed by US Congress earlier last week.
Despite cautious optimism sent by market participants in the wake of Friday globally positive PMI releases signalling a rebound in business activity and both manufacturing and services PMI pointing at 52.2 (prior: 51.3) and 51.6 (prior: 50.6) in the US, the reaction tends to consider that the economic slowdown seen in the past ten months has significantly reduced. Yet the situation has not fundamentally changed as US tariffs could still come into play by 15 December 2019 while the HK Human Rights Bill could be a drag on negotiations.
We would however temper the view and expect that discussions should extend into next year while tariffs threats should be postponed accordingly, with discussions on US agricultural product purchases and tariffs rollback still on the table.
Disclaimer: While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein. This document does not constitute a recommendation o sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investment.
Although every investment involves some degree of risk, the risk of loss trading off-exchange forex contracts can be substantial. Therefore if you are considering trading in this market, you should be aware of the risks associated with this product so you can make informed decisions prior to investing. The material presented here in not to be construed as trading advice or strategy. Swissquote Bank makes a strong effort to use reliable, expansive information, but we make no representation that it is accurate or complete. In addition, we have no obligation to notify you when opinions or data in this material change. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments.