Investors are focusing on US-China trade negotiations. This week, the market continues to receive negative signals. Following CNBC reports that negotiations were at an impasse, investors were hit again. On Tuesday, President Donald Trump said that if an agreement on an initial trade deal with Beijing fails, he could raise tariffs on Chinese exports even higher. The difficult negotiations may be complicated by the actions of the US Senate, which approved the bill on human rights and democracy in Hong Kong, which provides for the restriction of cooperation and trade supplies to the Hong Kong government. In response, Beijing accused the United States of interfering in China’s internal affairs.
Today, investors are waiting for the FOMC Meeting Minutes publication. Investors will seek clarifications of further actions of the regulator, first of all, at the rate. At the last Fed meeting, officials hinted at a pause in their further decline.
Today, oil prices are trying to grow. Today’s growth of quotes is of a technical corrective nature. The price is recovering after a serious yesterday’s decline. On Tuesday, the price was under pressure due to President Trump’s statements about the possibility of increasing tariffs on Chinese exports and the growth of oil reserves in the United States according to API at 5.954 million barrels. In the evening, investors are waiting for the publication of the report from the EIA. Oil reserves are expected to grow by 1.6543 million barrels. The implementation of the forecast will affect the instrument negatively.
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EUR is weakening against USD and JPY today but has ambiguous dynamics against GBP. Today, in addition to the negative signals on trade negotiations between the US and China, the publication of the ECB report puts pressure on EUR. It says that the risks of an economic slowdown in the EU area are increasing and continue to create problems of financial stability. Investments in insurance companies and investment funds in the current conditions are becoming increasingly risky, bank profits are declining.
Tomorrow, investors are waiting for the ECB Meeting Minutes publication. Many investors believe that the current state of the European economy requires the regulator to introduce new support measures but these have not yet followed, except for the start of the QE program with a buyback of 20 billion euros. It is likely that Mario Draghi, who is leaving the post of head of the ECB, did not assume responsibility for introducing new incentives but the market hopes that some measures to support the economy could be discussed at the meeting.
GBP is weakening against JPY and USD but has ambiguous dynamics against EUR. Due to a lack of significant economic releases, the attention of British investors is focused on parliamentary elections. Yesterday, the first television debate between the leaders of the parliamentary race, the Conservative and Prime Minister Boris Johnson and Labor Jeremy Corbin, took place. Most of the discussion concerned Brexit. Johnson confirmed that he wants to get the most seats in parliament in order to conclude a previously agreed deal with the EU, pull Britain out of the bloc on January 31, and begin negotiations with Brussels on permanent trade relations. Corbin said that if he wins, he will break the current agreement and will negotiate a new deal with the EU, implying a customs union and a single market. After approval, he intends to hold a referendum in order to obtain approval of the transaction by citizens. According to the polls, the debate did not reveal a clear winner.
JPY is now strengthening against its main competitors – EUR, USD, and GBP. The October data on Japanese foreign trade released today were negative. The trade surplus was only 17.3 billion instead of the expected 301.0 billion yen. Imports decreased, not as significantly as predicted, by 14.8% but the decline in exports exceeded expectations, amounting to 9.2%. The shipments of cars and aircraft engines in the United States and plastic materials in China were harmed the most. In general, exports to China decreased by 10.3%, and in the United States of America by 11.4%. Nevertheless, despite the poor data, JPY is strengthening due to negative signals from the US-China trade negotiations, which are forcing investors to buy JPY as a shelter asset.
AUD is weakening against JPY and USD but has ambiguous dynamics against GBP and EUR. AUD is under pressure from the negative signals associated with trade negotiations between the United States and China. Statements by President Donald Trump about the possibility of increasing tariffs on Chinese exports and the approval by the US Senate of a bill supporting protests in Hong Kong can complicate the conclusion of a trade deal. Delaying or breaking a contract could put significant pressure on the Australian economy. Australian Prime Minister Scott Morrison announced the government’s intention to accelerate the implementation of infrastructure projects in the amount of 3.8 billion Australian dollars to revive the Australian economy.
Robert Thomas has over 14 years experience in the investments on the institutional side of markets and has an “insider” view on the markets. In addition, he is an futures day trader that focuses on analyzing fundamentals, specifically earnings reports and technical levels. He has a Masters Degree in Business and Economics from Michigan University.