Risk sentiment improves despite trade tensions
By Arnaud Masset
Global equities rose across the board on Tuesday despite the escalation of the trade conflict between the US and China. In Japan, the Nikkei was up 1.41%, while the broader Topix Index surged 1.81%. In mainland China, the CSI 300 climbed 2.01%. European equities are also blinking green across the screen. The renewed appetite for risky assets suggests that investors are getting tired of this situation and are paying less and less attention to Donald Trump's tweets and public comments. In the FX market, the risk-on mood has helped the Aussie and the Kiwi to grind higher. AUD/USD added 0.25% during the Asian session as it crossed the 0.72 threshold to the upside. NZD/USD was up 0.20% as it struggles to consolidate above the 0.66 level. The single currency was trading flat as it consolidated gains from yesterday. From a technical standpoint, the currency pair has failed to break the 1.1731 resistance (Fibonacci 61.8% on May-August debasement) three times. A retracement towards the 1.16 area looks more and more likely, therefore.
Market participants in the United Kingdom remain optimistic regarding ongoing Brexit talks. After adding 0.70% on Monday, GBP/USD stabilised around 1.3140. The pair has surged more than 4% since mid-August on speculation that the UK will be able to secure a decent deal within the EU. Any negative news, further delay in negotiations or some major concessions made by the UK would trigger a severe sell-off in the GBP crosses.
Trade tensions on the way back
By Vincent Mivelaz
Trade issues are back and the diplomatic room for maneuver is getting tighter. Although US Treasury Secretary Steven Mnuchin would prefer softer methods in negotiating with his Chinese counterpart, US Trade Representative Robert Lighthizer advocates a tougher approach that uses trade sanctions to get concessions, a move that will probably prove to be ineffective.
In fact, as Steven Mnuchin was on his way to start negotiations with a high-ranking delegation from China, US President Donald Trump abruptly announced an extra $200 billion in tariffs, adding that a rise to 25% is to be expected by year-end. The impact, although mainly targeting the Chinese economy, is a serious brake on US economic growth as US consumers will face higher prices, mainly paid in favor of the US administration. The move is unpopular with the US Senate and retaliatory measures from China are anticipated shortly.
Accordingly, the PBoC is expected to make use of monetary and fiscal policies to address trade disputes and maintain currency stability. For now, it appears that the CNY remains robust compared to its Asian counterparts. PBoC fixing rate is at 6.8584, slightly weaker than the prior fix at 6.8509. USD/CNY is predicted to rise slightly higher, approaching the 6.8750 range.