White House economic advisor Larry Kudlow has commented that the US-China trade war phase one’s unresolved issues could spill over into phase two. He said this in respect to the recent handshake deal between Washington and China over trade. The deal has not been officially signed into a contract, thus leaving the door wide-open for it to be potentially revoked by either side. Progress continues to be made and President Trump said how confident he is that a deal will be signed as soon as next month to open the way for further negotiations in phase two. Stocks were solid yesterday off prior comments from Kudlow suggesting December tariffs could be removed if all goes well.
The EUR/USD continues to trade lower finishing on Tuesday down for a second consecutive day. Today, the EU will release October’s preliminary Consumer Confidence, which is expected to come in at -6.7 from September’s release of -6.5.
The GBP/USD moved decidedly lower, after the UK Parliament voted in favor of the Withdrawal Agreement Bill but rejected PM Johnson’s proposed timetable that would have seen MPs to pass legislation within the next three days. Right after the vote, PM Johnson said that he would pull the UK from the EU by October 31, but Downing Street has indicated that Johnson will push for an early election if the EU agrees to a delay. The never ending-Brexit soap opera continues, with more Parliament discussions scheduled for Wednesday. EU Council President Tusk has stated that he will recommend the EU 27 to accept the UK request for an extension, although he hasn’t detailed what that extension length would look like.
Some Brexit related fears have spurred demand for safe haven assets and there has been an increase in JPY buying, strengthening an average of 0.8% against other majors. A holiday yesterday in Japan had kept the markets relatively quiet for most of the day. With no economic news releases scheduled to push the currency one way or the other, JPY should continue to be led by outside influences.
Prime Minister Trudeau and President Trump spoke yesterday and discussed the progress being made towards ratifying the continental trade pact, known as USMCA. This was followed by US Ways and Means Committee Chairman Neal announcing that there will be an opportunity to meet with Canadian leaders soon to discuss the USMCA. Canadian retail sales unexpectedly fell 0.1% in August but there was little reaction from the Loonie, just about unchanged against the US dollar.
The People’s Bank of China has chosen not to cut interest rates. While the Chinese economy is structured somewhat differently from other major economies, the PBoC faces similar problems as to how to manage effective monetary policy. The one-year rate remains at 4.2% and the five year at 4.85%.