No Real Victory Yet
When it comes to trade war narrative, the white flag waved by the US President was just a little too early. The evidence of this can be seen by looking at the equity markets’ reaction yesterday. All the major benchmarks closed lower over in the US.
The so-called phase one which pushed the equity markets higher over in the US is still far from getting a rubber stamp.
However, traders aren’t losing their hopes completely and they are hopeful that a deal may be signed in November when President Trump will meet President Xi in Chile. This has tilted the trading action over in Europe in positive territory.
Sterling On Rise Again
The EU’s chief negotiator Michel Barnier said a deal is possible this week and his comments were enough to push the Sterling higher. But have seen some retracement in Sterling after the headlines which indicated that the ball is back in the UK’s court and Boris Johnson needs to improve his proposal again. It seems like traders are jumping on every single headline because they are feeling the closing of the deadline.
Time is of the essence and the reality is we do not have an abundance of it. The differences of opinion on the so-called Irish backstop issue have been of significant issue. The Bromance between Boris Johnson and Leo Varadkar is still yielding more gains for Sterling. There is also some optimism in the form of another EU summit taking place before the deadline (31 October), and traders are pinning their hopes on this. In our base-case scenario, if nothing happens then the British Prime minister will have no option but to request another extension.
In terms of economic numbers, hats off to the resilience of the U.K. economy against all the Brexit uncertainty. There is no doubt in saying that economic health is in good condition and the wage growth data has helped consumers to combat the heavy Brexit storm. We are going to get more updates on the economic numbers later today. The forecast is for this number to hit the reading of 4.0% and the unemployment rate to remain at 3.8%
Oil Drops On Limited Trade Deal
Oil prices are under pressure because of the absence of the stable global economic growth. The trade war is having an impact on oil demand. Unfortunately, President Trump still doesn’t have anything substantial to show. The trade war negotiations took a wrong turn after China said that they still need another round of talks to iron out a deal. Basically, so far we have nothing to show up and traders cannot find a reason which can support the demand equation for the oil price.
However, this could change and this is because we believe that it isn’t Trump anymore who is playing hardball with China, but in fact, it is China playing hardball with the US. The 20/20 US Presidential election is just around the corner and Chins knows that Trump needs a victory badge. Trump is desperate for a deal and China can get a much better deal than what is currently on the table. This is the reason that Beijing has asked for December tariffs increase to be postponed as well.