The stock market futures are down a bit in morning trading because of Hong Kong violence and US China trade tensions. Yesterday, the positive reaction of the market was caused by comments of the official representative of the Chinese Ministry of Commerce Gao Feng, who announced the agreement of the PRC and the United States to begin the phased cancellation of some existing bilateral increased export tariffs. However, today the market received conflicting signals. Economic Advisor Larry Kudlow confirmed that if the initial transaction is concluded, the parties will make tariff concessions. However, trade adviser Peter Navarro clarified that there is no concrete agreement on the mutual cancellation of tariffs as a condition for signing a trade transaction, and only President Trump can decide on this. Thus, the situation surrounding the conclusion of a limited trade agreement remains uncertain. USD is strengthening against its main competitors – EUR, GBP, and JPY.
Today, oil prices are being corrected downwards. Quotes were under pressure due to the uncertainty surrounding the trade deal between the United States and China. On the eve, it was believed that the parties achieved a breakthrough, agreeing to begin the phased abolition of trade tariffs. However, today, representatives of the US administration said that no final decision had been made. Also, it provoked serious opposition in the White House. In the evening, the publication of the Baker Hughes report on active oil platforms in the United States of America is expected. Previously, the number reduced from 696 to 691 units. Continuation of this trend may support the quotes.
EUR is strengthening against GBP but weakening against JPY and USD. European investors are focusing on statements by the head of the European Commission, Jean-Claude Juncker, and the publication of German trade data. Juncker said that the US administration will not raise tariffs on the export of European cars to the United States. Next week, President Donald Trump may decide on this. Representatives from the EU and the United States are currently consulting on export of autos issues, which appear to be progressing well. The September German trade data released today turned out to be positive. The trade surplus, instead of the expected decline, rose to 19.2 billion euros. The volume of exports rose sharply by 1.5% and the volume of imports grew by 1.3%.
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GBP is weakening against USD and EUR but has an ambiguous dynamics against JPY. Due to a lack of significant economic releases, the attention of British investors is focused on parliamentary elections. At present, key political forces in the UK are campaigning. Labor promises to citizens an increase in social spending, including maternity benefits, and conservatives continue to clarify the terms of the Brexit deal. Prime Minister Boris Johnson reiterated that Northern Ireland will continue to be part of the UK customs territory but will also continue to follow EU customs rules, and there will be no border checks. The alignment of forces remains unclear and creates additional uncertainty around Brexit.
JPY is weakening against USD, is strengthening against EUR and has ambiguous dynamics against GBP. The September data on spending by Japanese households released today turned out to be positive. On a monthly basis, the indicator increased from 2.4% to 5.5%, and on an annualized basis it grew from 1.0% to 9.5%. However, these data could not seriously reassure investors, since such a significant increase in expenses is explained by the expectation of an increase in sales tax. Now that it has taken place, household spending can markedly reduce. Also, Prime Minister Shinzo Abe instructed the government to develop investment plans to support the growth of the Japanese economy in the face of a slowing economy and trade tensions.
AUD is weakening against its main competitors – GBP, JPY, USD, and EUR. The course is under pressure from data on Chinese foreign trade. In October, the volume of exports of Chinese goods declined for the fifth month in a row, this time by 0.9%, which is less than 3.9% expected by the market. Imports also decreased by 6.4% against the expected 8.9%. The trade surplus fell to $42.81 billion. Although China’s trade data turned out to be better than expected, the Chinese economy is still under pressure, which, along with the uncertainty in the US-China trade deal, puts pressure on commodity currencies, including AUD.