Chances for a broader agreement between China and the USA (Daily analysis 5.11.2019)

05.11.2019 13:43|Marcin Lipka

There are more and more leakages about the announced truce in the US-China trade conflict. In the context of the trade war, it is also worthwhile to observe the events in Hong Kong. The zloty and the slightly stronger dollar depreciate, but the Polish currency still remains strong.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 4:00 p.m.: ISM service sector index in the USA in October (estimates: 53.5 pts.).

Extension of the trade agreement

In yesterday's analysis, we emphasised the main elements of the expected trade truce. It seems that the information that has been coming in over the past few hours may suggest that this ceasefire will be more comprehensive than could have been expected. This also means that the impact should also be more positive for the global economy and, in particular, for Europe, which is heavily affected by the trade conflict, when the changes under discussion come into force.

At the beginning of the month, the dominating scenario was that Washington's agreement with Beijing would primarily include provisions for higher purchases of agricultural goods by the Chinese, while the US would instead abandon the new customs duties on imports from the Middle Kingdom planned for December. Now, however, there is much to suggest that the concessions on both sides will be much greater.

Before midday, the Financial Times published a letter citing five people familiar with the subject, saying that the administration of President Donald Trump is wondering whether to revoke the 15% tariffs imposed in September on annual imports worth around 112 billion USD (clothing, household appliances, screens). This would mean, as the FT reminds us, that Beijing's main requirements for a truce would be met. On the other hand, such large concessions from the US (together with the freeze on customs duties expected from December, less than half of Chinese imports would be subject to additional charges) may mean that at least preliminary agreements on intellectual property rights must be signed. "FT" estimates that the US would like to sign the agreement on US territory.

In the last few hours the Wall Street Journal also pointed out that the first phase of the pact will include the prevention of currency manipulation (the USA accuses China of this). The "WSJ", like the "FT", estimates that the agreement will also include provisions related to the protection of intellectual property. The WSJ adds information about the possibility of a wider opening of the Chinese industry to American companies.

Another important element which increased the chances of an agreement was the unannounced meeting between the Hong Kong authorities and the Chinese President. Carrie Lam, Hong Kong Chief Secretary for Administration, said that her meeting with Xi Jinping was good news and showed "his interest and concern for Hong Kong". Other statements quoted by Bloomberg may also suggest that Beijing wants to ease the dispute with the former British colony and, contrary to earlier speculation, Lam's position is not at risk for the time being. In the past, leading representatives of the US administration have expressed the view that a peaceful solution in Hong Kong issues can also contribute to a trade agreement. Media coverage shows that Beijing follows these suggestions (provided, of course, that actions follow the words).

Taking into account all the information received in the past hours, a much more comprehensive agreement can be expected. This is also seen by investors. S&P futures have reached new historical highs and the strengthening of the yuan against the dollar has brought the USD/CNY exchange rate below the 7.00 boundary. If an enlarged agreement were to be signed, one can expect that market sentiment would remain relatively good for longer, especially if the incoming economic data from the eurozone (e.g. PMI or Ifo quickly react to changes in sentiment) started to improve significantly.

Zloty stabilises

The zloty lost some of its recent increases despite the good global sentiment. This may be due to a slight dollar appreciation in relation to the euro (the rate approaches the 1.11 boundary again). The US currency is slightly stronger not because of market fear but in response to information that the trade agreement may be more comprehensive than expected, which means a decreasing risk of further interest rate cuts by the Fed, and perhaps even a return to the need to think about the increases. In general, however, the situation of the zloty in the next few hours should not change dramatically, and the Polish currency is likely to remain relatively strong and stable.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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