U.S.-China Trade Moves Back to Front Burner

10/08/2019 12:00 pm EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director, ForexLive.com

Trade talks between the China and the United States are once again driving forex markets, reports Adam Button.

Just as China appeared not to be interested in the type of comprehensive trade deal that President Trump wants, matters got worse for U.S. stock indices on re-emerging reports that the White House is studying proposals to limit U.S. government pension investments in Chinese stocks. 

A similar story was denied late last month but seems to be making the rounds again. 

The British pound (GBP) is the worst performer on mixed reports indicating the UK was readying for a no-deal Brexit Markets await comments from Fed chair Powell later this evening (see table of best and worst forex pairs.

More Twists & Turns Pre Trade Talks - Performance Oct 8 2019 (Chart 1)

Several reports at the start of the week indicated that China won't even discuss some of the issues the United States is demanding like industrial subsidies and intellectual property theft. That puts us back towards something akin to buying soybeans in exchange for lifting tariffs.

Last month, President Trump said he wanted a comprehensive deal or nothing, but on Monday he softened the tone, saying he would prefer a big trade deal. That difference could be splitting hairs as President Trump isn't fond of subtlety and we're now at the point where a wait-and-see strategy beats jumping the gun on every headline.

The market was whipsawed Monday after a Fox Business report saying China was open to a smaller trade deal. That boosted risk trades but they later reversed when the report added that China wouldn't negotiate on intellectual property.

Looking ahead, Fed chairman Jay Powell has an opportunity to manage rate cut expectations at an event at 2:30 p.m. EDT in Denver. There is a prepared text and Q&A so there will be plenty of opportunity for market moving headlines. At the same time, Powell will surely want to avoid tipping his hand before US-China trade talks conclude. The Fed funds futures market is currently pricing in a 71% chance of a cut on Oct. 31, but that will swing about 30 percentage points depending on the results of trade talks.

Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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