Should I Stay Or Should I Go

Macro 4 minutes to read

Eleanor Creagh

Australian Market Strategist

Summary:  If I go, there will be trouble
And if I stay it will be double

Trade sentiment is dominating the narrative and in the near-term markets will remain headline driven.


A roller-coaster of a day for Asian traders and particularly US futures amidst a barrage of chaotic trade headlines. Early in the session a strong risk-off tone ensued as an SCMP report hit the wires citing no progress had been made in deputy level trade talks pouring cold water on any hopes for meaningful progress and an interim deal. Sources also claimed China’s chief trade negotiator, Vice Premier Liu He, would be cutting his trip to Washington short and leaving Thursday after just one day of talks which soured risk sentiment further.

Almost as soon this news was digested US sources claimed trade talks would not be cut short and Liu He would be staying in Washington until Friday and that the SCMP report was not accurate. Then a separate Fox News report stated the talks would be cut short and Liu He would be leaving Washington on Thursday.

These headlines were then followed by reports of a possible currency pact and soon to be approved licenses allowing some US companies to supply goods to Huawei. All whilst equity indices oscillated in keeping with swinging risk sentiment. If anything, a lesson to avoid trading on unsubstantiated headlines.

Talk of a currency pact has once again raised hopes of the potential for a partial deal which has seen US futures recover losses and risk proxy currency, AUD, retrace earlier moves also. However, the tone is still very much one of caution despite the recovery of early losses.

As talks begin the ongoing vacillation of headlines will keep markets on edge and more noisy price action is all but guaranteed. Expect more wild swings across e-minis and AUDJPY. The risk of a breakdown in the trade talks still remains high.

On the Chinese side there appears to be appetite for an interim deal (perhaps because they will never succumb to the more hawkish US demands of a true reset) particularly given negotiators have upheld their travel to Washington against the backdrop of visa bans, blacklisting China’s tech champions and NBA clashes. However, any partial deal is unlikely to bring anything new to table, the concessions floated by China mirror those that were talked about earlier this year. They are minor in the grand scheme of things consisting largely of agricultural purchases and a currency pact. There is also the ongoing issue of rolling back/suspending tariff threats which has long been a key demand from Chinese side, without this the chances of an interim deal are slim.

Negotiations may make progress on these smaller issues but fundamentally the relationship has changed between the US and China. A partial/interim deal, IF it can be reached, will only provide temporary relief from long-term bilateral tensions. That means the interim deal will not be enough to reignite confidence and investment for businesses.

Comprehensive deal remains unlikely

We have always maintained that the tariffs and trade negotiations are just scratching the surface in a far deeper rift which is more akin to Cold War 2.0, and one that cannot be resolved in a “trade-deal”. This is a long-running economic conflict and battle for tech dominance and hegemony. China will continue their strategic push to become technologically advanced as the productivity gains required from advanced tech and AI and the like is required to propel china from middle income to high income country as they rotate from a low-end manufacturing and export driven economy towards domestic consumption and services drivers.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.