(25 November 2019)DAILY MARKET BRIEF 1:Markets insensitive to trade headlines

Aside of positive headlines coming from China’s effort to ensure stricter penalties against intellectual property violations, it appears that an interim trade agreement is not anymore on the agenda of this year despite US President Donald Trump 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 signaling 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.

By Vincent Mivelaz