Published: December 9th, 2019
Global markets strode into the last month of the year with confidence reeling from the uncanny boost coming from the impressive resilience of the Chinese economy. While the Orient nation holds the cards, equally encouraging data of the NFP, too, may have played a part in raising the confidence.
The global markets matched into December with a bit more robustly strides. First, a surprise rise in Chinese manufacturing improved equities and sent a signal that the economy may have already gotten out of the doldrums after all.
However, the data beat emerging from the Orient was not the only amplifier. The Black Friday sales pumped in a record $7.4 billion into the market invigorating the economy, especially after Wall Street had closed on a low.
And, the US factory and jobs data provided the information that investors needed in order to hang on to the record equity prices. Despite all these good indicators, the wild card still is the US-China trade squabble. This tiff between the globe’s two leading economic powers has two edges like the proverbial sword.
First, the data turnaround of the manufacturing industry already has a positive impact on China and is boosting what is evidently a record sale of the US government’s bonds that are dollar-dominated. The status as it is re-affirms the markets and highlights the public’s widespread trust in the economy of China. However, this belief also sends China, and most especially its officials negotiating the phase-one deal, into a state that is sort of euphoric.
The end result is that Chinese officials may be tempted to harden their trade position ahead of the fresh negotiations with the US. Already, the Chinese negotiation party has hinted that they want the US to suspend or remove entirely, all the existing tariffs before they can agree to sign off on any phase-one deal.
This position as stated by the Chinese government may not go well with their American partners. As it stands, the Trump government is only ready to give up the tariffs they had proposed for the December 15, 2019 round of talks.
A further boost in the Forex space and a somewhat steady dollar are a result of the gains induced by the US payrolls against all majors. Just like the effects of the Chinese economy, the gains brought about by the NFP seem to lack follow-through mostly because of an eminent retreat in the yields posted by the US Treasury.
While the US Dollar seesaws with modest progress, the true gainers have been the Australian and New Zealand Dollars. An analysis of the market rates a little late in the narrative provides a highlight.
Economists think that though the outlook paints the dollar on the gaining streak, they hold that these gains may not be long-term. Patrick Armstrong who is the CIO of Plurimi Investment Managers contends that while most investors look to make money when Beijing and Washington pen a deal, he says that the money-making ways of such opportunistic traders may not be long-term because Sino-US trade war, according to him, is not resolvable.
The data from November seems to agree with his sentiments. Despite China putting up a brave face, its exports fell 1.1% year on year, and this is the fourth such consecutive fall. Exports to the US, in particular, came down 23%, which is the worst since February 2019. And, this drop marks the twelfth consecutive slide in exports from China to the US.
These figures come even in the face of confirmations by Larry Kudlow who is the White House economic adviser that the Trump government was looking at imposing a fresh round of tariffs on $156 billion worth of Chinese exports.
Of course, the White House has since retracted its threat amid a counter ultimatum from the Chinese government.
Linette Lopez, a columnist with the Business Insider shares the same sentiments. However, her outlook is a lot bleaker than Armstrong’s. In a recent article, she says that it is possible the Sino-US trade wars may have lost their meaning, and all this happening during the period the American public was engrossed in the impeachment hearings of Donald Trump.
According to her, the Trump administration should fight for structural changes in the managed economy of China instead of negotiating to get the China-US trade to where it was before the misunderstanding emerged, as it seems to be doing.
And, the reason why this approach may only make the dollar’s gains temporary is that the entire war now begins to look like a circus. Lopez says that the negotiations now look like a loop and the Trump administration is not coming out clearly on the steps it wants to adopt to get out of the situation.
On the backdrop of China’s mixed returns, the US Dollar seemed stable but still balked to the Australian Dollar. The Aussie Dollar posted just below 0.68 this week while the New Zealand Dollar is going strong at 0.65.
The Canadian Dollar, however, seems stuck on the negative. The US Dollar has rallied +0.10% to push the Great White North’s currency to 1.32.
The USD/JPY pair, on the other hand, is dropping and now stands at 108.5 or thereabouts from a high of 108.7, probably because of the improved performance of the Japanese economy in Q3.
The USD may look great now but it is everyone’s hope that this is long-term. The variables, however, tell another story. The events set for the near-future that may breathe more life into the currency or dip its fortunes. The UK elections, for instance, have a bearing on all the major currencies. The upcoming monetary policy decisions from the European Central Bank (ECB) and the Federal Open Market Committee (FOMC), are others.