Intraday Market Thoughts

Will US Concede to China's Tariffs Demands?

by Adam Button
Nov 5, 2019 14:39

US indices extend to new highs, but a late push by China to remove tariffs in order to complete a Phase One trade deal may have cornered Trump. The Australian dollar got a lift as the RBA settled into a comfort zone. The crucial ISM non-manufacturing index is up next (more on this below). USDCNY regains 7.0, while XAUUSD nears the 1482 support, a break of which could call up 1471 (100 DMA).  With the DOW30 breaking our 27530 stop, where is the next high? What is the next course of action. If you're hedging your shorts with partial longs, at which point to close the longs? All this in this evening's detailed Premium video (after the NY close).

قمة الداو جونز القادمة (فيديو المشتركين)

China is pressing the US to remove Sept 1 tariffs as part of a trade deal, according to multiple reports on Tuesday. Top US officials are debating whether to make the concession as part of the phase one trade deal. The report says the US wants more on IP protection and enforcement along with a signing ceremony in the US in exchange. The latter point may be the area to watch because revelations about a signing location could come before a deal announcement.

Yen crosses and risk trades rose on the reports but they're not necessarily good news. The market has 99% priced in a deal and China pressing on such a key point so late suggests there is still the risk of a blowup. USDJPY is back to where it was before the FOMC meeting.

China has undoubtedly been listening to a bevy of US officials who have touted how close a deal is and watched markets rise in anticipation. That talk may have cornered US officials into bending on final requests from Beijing. At the same time, Trump has already shown he's not afraid of a U-turn, so there is a risk that China overplays its hand.

Overall, this report alone is no reason to fight the optimism in markets but if signs of strain mount in the days ahead, then we could see an abrupt revesal.

Looking ahead, the October ISM manufacturing index is a key risk in New York trade. The consensus is for an improvement to 53.5 from 52.6 previously. An unexpected bump would help to cement the momentum in risk trades and yen crosses.


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