TALKING POINTS – AUSSIE DOLLAR, YEN, STOCKS, TRADE WAR, EURO
- Yen down, commodity currencies up as Trump talks up China trade deal
- Sentiment recovery unlikely to prove lasting as macro headwinds remain
- Eurozone GDP, German CPI data to bolster the case for Euro weakness
Recovering risk appetite defined G10 FX performance in Asia Pacific trade. The sentiment-geared Australian, Canadian and New Zealand Dollars rose alongside regional stock exchanges while the perennially anti-risk Japanese Yen ticked broadly lower.
An ostensible downshift in trade war worries drove the move. That followed comments from US President Donald Trump talking up the possibility of a “great” trade deal with China, tamping down earlier fears of further tariff hikes.
Bellwether S&P 500 futures are pointing convincingly higher ahead of the opening bell on Wall Street, hinting that the risk-on drive has scope for follow-through. Critically though, a lasting recovery would require substantive resolution on a host of macro-level issues. That, alas, does not seem to be on offer.
RECOVERY IN RISK APPETITE UNLIKELY TO LAST
A deal with China may well emerge eventually, but nothing suggests this is imminent. Further, headwinds from accelerating Fed rate hikes against a backdrop of slowing global growth and numerous pockets of political uncertainty – stalled Brexit talks and Italy’s tiff with the EU, for example – remain.
On balance, that suggests the markets’ readiness to emphatically embrace even the most trivial bit of encouragement reflects the extent of recent bloodletting and the accompanying need for a respite rather than a true improvement in the overall landscape. Such recoveries are brittle as a matter of course.
INCOMING DATA MAY BOLSTER THE CASE FOR EURO WEAKNESS
On the data front, Eurozone GDP statistics are expected to put regional growth at 1.8 percent on-year in the third quarter, the slowest in two years. Meanwhile, the German CPI report is projected to show inflation hit a seven-year high at 2.4 percent on-year in October.
Taken together, this speaks directly to the problem now faced by the ECB, explaining why the central bank’s rhetoric took a dovish turn last week (as expected). Namely, the recent rise in price growth is occurring for all the wrong reasons, reflecting a weaker currency rather than improved performance.
Further evidence to this end seems likely to bode ill for the Euro over time. Absent particularly eye-catching deviations from forecasts however, near-term volatility triggered in the releases’ wake seems unlikely to have staying power considering the ECB looks to be on autopilot at least through year-end.
See our forecasts for currencies, commodities and equities to learn what will drive prices in Q4!
ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
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