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Trading riddle (Daily analysis 27.11.2018)

27 Nov 2018 13:16|Marcin Lipka

Emotions are intensifying before the G20 summit. Incoherent reports on future trade relations between the US and China. The changes in the Italian budget may be only symbolic. The zloty remains stable. The euro is quoted close to the 4.29 boundary, and the dollar is slightly below 3.80 PLN.

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

  • 2:30 p.m.: Richard Clarida's speech, the Vice-Chairman of the Federal Reserve.

Trade in the spotlight

The G20 summit, which starts on Friday, attracts more attention than usual. This is related to the fact that a meeting between the Presidents of the United States and China is scheduled during this summit. A truce in the trade war between the powers that has been going on for months is expected to be the result of these talks. While the chances of an agreement seem to be relatively high compared to previous ones, the risks of an escalation of the conflict also remain significant.

The interview with Donald Trump published yesterday evening in The Wall Street Journal can be viewed negatively in the context of the G20 summit. The newspaper published a full transcript of the discussion, which shows that if US conditions are not accepted, then from the new year onwards customs duties on 200 billion imports from China will be raised from 10 to 25%. Remaining imports (another about 250 billion USD) may also be subject to restrictions of 10 to 25%. The interview shows that China's absolute minimum requirements for customs duties not to be introduced are to respect intellectual property and to fully open up (without barriers observed in emerging countries) to investment from the US.

Compared to the WSJ's interview, the Financial Times analyses move in a slightly different direction. In "The US, China and Wall Street's new man in the middle" it is clear that many influential people are not happy with too much tension between the US and China. Therefore, it may be more likely to foster the neutral tone of the G20 than to exacerbate the situation by raising duties.

Even if there is no breakthrough at the G20, it seems that there is a relatively limited risk that the meeting will end in failure, even though the tone of the interview for "WSJ" was pessimistic. A continuation of the talks and a stop to the escalation of the trade war can rather be expected. This could harm the dollar next week.

The small step in budget agreement

Talks in Italy between the leaders of the ruling parties and Prime Minister Conte did not result in a clear statement that the budget deficit would be reduced. Even if it appears, it may be symbolic (from 2.4% to 2.3-2.2%). Neither the League nor the Five Star Movement wants to give up their most expensive ideas, which means that the government will probably refrain from sending any changes to Brussels at the moment, as they would most likely be rejected.

No agreement on major changes in the deficit means that the yields of Italian bonds have stopped depreciating. Therefore, instruments maturing in 10 years are around 3.25%. If the debate in Parliament on the budget (December 3rd) fails to introduce major changes, we can expect a return to the highs on yields and downward pressure on the euro.

Richard Clarida's speech is worth noting in the coming hours. His recent interview for the CNBC caused a strong weakening of the dollar. If there are any suggestions about the possibility of stopping interest rate rises (risk of economic downturn abroad, moderate inflation, etc.) in today's speech, the US currency may once again depreciate.

Stable condition of the Polish currency

The zloty remains stable. One-day changes in the EUR/PLN pair are becoming within the range of only 0.5 PLN plus/minus. There is also no signal strong enough to disturb the current stagnation of quotations.

More changes are observed on the dollar or the pound in relation to the zloty. The British currency depreciated (PLN 4.83) due to the clear statement about the rejection of the Brexit plan by the Tory co-coalition party, the Northern Ireland's DUP party. On the other hand, the dollar has been appreciating in recent hours because of concerns about foreign trade. In general, the zloty in relation to the basket of currencies or the euro remains very stable, and this also seems to be the base scenario for the following hours.

27 Nov 2018 13:16|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:

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)

23 Nov 2018 15:52

Lower oil prices support the zloty (Afternoon analysis 23.11.2018)

23 Nov 2018 13:32

Again eurozone's data failed (Daily analysis 23.11.2018)

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