Phase 1 trade deal on the horizon


Trade talks between the US and China will continue. As it stands now, the US wants China to commit to larger grain purchases, while the Chinese want to roll back the next set of tariffs expected to take place on December 15th. However, there is still hope of a signed Phase 1 trade deal with China getting done before the end of the year, according to US national security advisor Robert O’Brien. On the other hand, Reuters reported over the weekend that any “Phase 2” deal looks unlikely as the Chinese were quoted as saying “It’s Trump who wants to sign these deals, not us. We can wait”. Trump has yet to respond. There are a number of US data releases coming out in the next few days. Housing figures will come out in the next few days and if there are better than expected numbers, it would be an indication that the Fed’s rate cuts this year have helped the housing sector. Consumer Confidence is also due this week as well as CPI and GDP numbers. These numbers should all be USD positive.


EUR/USD is lower this morning, after the release of German IFO numbers came in at 95.0 which was the expected number and beat last month’s 94.7 number. After the IFO release, the German “think-tank” issued the statement that “German manufacturing is still stuck in a recession”. This statement has put pressure on the EUR. As Germany and the rest of the Eurozone grow at a slower pace than expected, the EUR will have trouble rallying.


GBP/USD remains firm as UK Prime Minister Johnson has made a new promise regarding Brexit. He stated over the weekend that “once the Brexit deal is done, there will be a tidal wave of investment in Great Britain”. After the election on December 12th, which pollsters expect to be a Conservative Party victory, Prime Minister Johnson is looking to get Parliament back to vote on Brexit before Christmas.


USD/JPY continues to trade off the US-China trade talks and at the moment traders are easing back on their safe haven purchases. Adding to the overall JPY weakness was US data releases showing a positive effect on the US economy. As with all currencies, the JPY will move this week off the comments that come from trade talks. The short week could create liquidity problems as we head towards Thursday. 


GDP numbers, released later this week on Friday, will be on traders’ minds as the data will feed speculation that the Bank of Canada could cut interest rates if the numbers disappoint. After posting positive numbers in June, the economy is expected to have slowed in the third quarter. Traders are pricing in a 40% chance of a rate reduction in January.


Asian equity markets were higher overnight as Hong-Kong voters elected 87% of the “pro-democracy” candidates. 388 out of 446 seats were won by pro-democracy candidates, which was a huge jump from the 125 seats they won in 2015. While these councils have little power, these election results should put added pressure on the Chinese and Hong Kong governments to answer protestor demands. 

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