US-China Trade Delay? Risk Profile Unfazed

Do you want to find out what the latest headlines about a potential delay in the US-China Phase One trade deal really means for the likes of the AUD or NZD? What are stocks and bonds telling us about the prospects of a deal being eventually inked? Want to learn a powerful monthly setup that can define your bias for months to come? The report unveils it all...

Quick Take

The market has gone into defensive mode, even if just moderately, following reports that the US-China Phase One trade deal and its subsequent signature ceremony could be delayed until December, with the immediate reaction by Mr. Market being that a delay implies more friction/disagreement. However, in the big picture, the headline is far from damaging the outlook for stocks, with the US 30-year bond yield not placing much weight either judging by the lack of downside follow-through. While it is no longer a far-fetched scenario to think that the US-China trade negotiations could collapse, it is still far from being the base case for the market. What this implies is that the lower beta-currencies go, especially the AUD and NZD (not so much the CAD outlook as it got hurt by BOC transition into dovish mode), the better deals one could get at key liquidity areas as the market is still clearly inclined to stick to the main thematic of giving the US and China the benefit of the doubt in Phase One of the trade deal. The USD also continues to show a conducive upward stepping formation, finding a third leg up at an index level, further evidence that the market may be over-reading the trade delay headline judging by the initial fall in the Oceanic currencies, a move not manifested in a major deterioration in the risk profile. What this also implies is that the moves up in the Yen and the Swiss Franc may be a stretch that provides sell-side opportunities (the risk-weighted line accounting for the S&P 500 and US 30y hints that). In terms of the European block, the EUR saw steady buy-side flows as the EU data improved, while the Pound failed to sustain the buying interest ahead of today's BOE. 

Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

US-China trade deal delay: The risk that the US-China Phase One trade deal could fall apart is definitely not a far-fetched scenario anymore but rather a potential reality check  as the latest developments demonstrate following a Reuters report that the Trump-Xi trade deal signing could be delayed until December, with even some rumblings by US officials that a pact might still not be reached.

Location not as important as details: According to parallel reports, the US is toying the possibility of scheduling the Trump/Xi meeting to sign the interim US/China trade deal, still to be finalized, after the NATO summit in London for December 3. The market won’t buy into this news, which implies a deal is far from done and dusted, as both sides still remain under the negotiating phase, with China pushing for a suspension of recent and upcoming tariffs and the US yet to agree for what may be seen as a Trump softening up.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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