There will be no tariffs on import from China (Afternoon analysis 13.12.2019)

The first phase of the agreement between the two powers is concluded. Although translation and signatures are still missing, there will be no further complications in international trade. China is expected to increase its purchases of wheat, rice and corn from the USA. The dollar is paring most of the losses after the announcement of the election results in the Islands.

Sceptical reaction

About half an hour after the opening of the New York market trading session, a press conference on trade began in Beijing. China agreed on the first phase of the agreement with the USA, which is already in the written form. The Chinese side told us that the priority was to sign the agreement (and to translate and evaluate it legally). The US would also have to withdraw existing tariffs in phases. During the conference, we heard that both sides agreed to improve the final details as soon as possible. China has also declared that it plans to increase its imports of wheat, rice and corn from the US (within the agreed amounts).

During the conference in Beijing, the US President shared his thoughts on Twitter. As expected, the new customs duties will not be introduced on December 15th. There will still be 25% duties on imports worth about 250 billion USD and 7.5% on imports worth about 120 billion USD. Trump also added that negotiations on the second phase of the agreement would start immediately, and not after the presidential elections in November 2020, as previously suggested by the US President himself during the last NATO summit in London.

The fact that there is no risk of further restrictions on international trade is a positive signal for the market. However, this was a baseline scenario. Still, the details of the first phase of the agreement were not very specific. Therefore, the market response can be considered as cautious. The dollar after Donald Trump's conference and tweet pared most of the losses incurred after the announcement of the election results in the UK.

The EUR/USD quotations moved away from the 1.12 level, and in the afternoon, the exchange rate was about 1.1120, i.e. close to the level before the announcement of the election results. The USD/PLN exchange rate also diverged from today's lows at around 3.82 and was around 3.84 in the afternoon. However, the zloty's basket was in good shape, gaining support from the prevailing positive sentiment on the broader market, which was associated with the scale of victory in the UK of the Conservative Party. The EUR/PLN exchange rate fell to around 4.2650, setting new lows since November 11th. On the other hand, the GBP/PLN pair remained at a relatively high level, but the globally recovering dollar somewhat reduced today's appreciation of the pound. The British currency's exchange rate in relation to the zloty moved in the range of 5.10-5.11 around 5:00 p.m., i.e. much below the highs of 5.184, which we observed just after the announcement of the Conservative victory on the Isles. However, the strong fluctuations of the pound will probably not stop, but the election result may suggest further increases in the exchange rate in the coming weeks.

Next week's preview

The new week can start with significant moves in the broader market. Market participants can still discount the trade provisions between the USA and China. On Monday, however, the preliminary PMI data from the industrial and services sectors for the eurozone will be published. Both in the case of Germany, the largest economy in Europe, and the whole single currency area, small increases of 0.1-0.4 points are expected. Market participants will keep a close eye on those data that can give signals whether the eurozone and its industry are slowly recovering from the economic downturn.

The UK elections are over, but on Thursday another significant event will take place for the pound. After the two-day meeting, we will find out about the Bank of England's decision on monetary policy. Changes are not expected, but the Bank's announcement may be important. Eliminating the uncertainty surrounding the elections may strengthen the message and potentially the pound as well.