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The uncertain outcome of G20 (Daily analysis 28.11.2018)

28 Nov 2018 13:28|Marcin Lipka

The risk of imposing 25% duties on European cars worsens sentiment in the eurozone. The EUR/USD quotations are below the 1.13 boundary. The zloty remains stable and euro costs between 4.29 and 4.30 PLN. The franc and the dollar exceed the 3.80 PLN level.

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

  • 6:00 p.m.: Speech of the Fed's Chairman.

Custom duties dispute returns

Apart from the issue of the customs war between China and the United States, the concerns that there may be the imposition of 25% duties by the US on European cars are attracting the market's attention.

Yesterday, WirtschaftsWoche (quoted by the Financial Times or Bloomberg) wrote that the US Department of Commerce will recommend the introduction of customs duties on imports of cars. Cars produced in Mexico or Canada are to be released from additional trade restrictions, but customs duties may apply to those manufactured in the EU.

Yesterday evening Bloomberg reported that Cecilia Malmstrom, the EU Trade Commissioner, was supposed to fly to Washington, but the EU authorities denied this information. After Jean-Claude Juncker's meeting with Donald Trump a few months ago, it was widely assumed that new duties would not be introduced until trade negotiations between the EU and the US had been concluded. However, the news agency points out that these negotiations are already in their final stages and if they failed, the issue of customs duties will indeed be open (not only for EU cars but also for Japanese cars).

President Trump also mentioned EU car tariffs in an interview for The Wall Street Journal on Monday. Donald Trump bragged that when there was a real chance of introducing additional trade restrictions on European automotive products, the Head of the European Commission, Jean-Claude Juncker, appeared in Washington the next day at seven o'clock in the morning. Trump also talked about the losses caused by imports of European cars. Therefore, it is clear that this issue is still present in the White House's policy and can indeed return in the coming days, having a negative impact on the euro.

In a global perspective, trade-related issues between the USA and China will continue to attract the most attention. The meeting of the presidents of the two powers at the G20 summit is scheduled on Saturday, so the impact on the market will only be visible after the weekend. There is a lot of information on the chances of success of the talks and it is extremely difficult to say whether China's concessions (e.g. on a restrictive approach to intellectual property violations in the Middle Kingdom) will be sufficient to stop the increase in customs duties (from 10% to 25%) on imported goods worth 200 billion USD a year. The number of speeches in recent hours may also be an element of the negotiation strategy or leaving a gateway for both sides to implement each scenario. Overall, given the reports from the past month, the chances of a truce seem to be higher than the escalation of the conflict.

Zloty weaker against the franc and the dollar

The EUR/PLN quotations remain extremely stable in the range of 4.29-4.30 PLN. The situation of the Polish currency in relation to its US or Swiss counterpart is slightly worse. However, this is mainly due to global movements. The dollar is stronger due to concerns over US-China trade. The franc, in turn, gains, is the most expensive in relation to the euro in two months. This is a consequence of the return of worries about worsening relations between the USA and the EU.

Today's speech of the Chairman of the Federal Reserve should evoke little movement. Perhaps slightly more volatility is brought by the Q&A session (after 6:00 p.m.). Interesting questions will be asked about the independence of the Fed (in the context of President Trump's comments on too high-interest rates) or about the moment when the increases are stopped because they reach a neutral level. In general, the risk of more profound movements of the dollar is somewhat limited before tomorrow's publication of the minutes of the November FOMC meeting and the G20 summit at the weekend. Also in the following hours, there are no significant threats to the stabilisation of the zloty in relation to the euro.

28 Nov 2018 13:28|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

27 Nov 2018 15:31

Zloty in a favourable situation (afternoon analysis 27.11.2018)

27 Nov 2018 13:16

Trading riddle (Daily analysis 27.11.2018)

26 Nov 2018 16:18

Market sentiment improves (Afternoon analysis 26.11.2018)

26 Nov 2018 13:38

Will Italy make a deal? (Daily analysis 26.11.2018)

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