· A telephone call between top U.S. and Chinese trade negotiators lifted the dollar to a two-week high against the yen while China’s yuan edged up on Tuesday, due to optimism that the two sides will soon agree an interim deal to halt their trade war.
Chinese Vice Premier Liu He, U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed issues related to a “phase one” trade agreement and agreed to maintain communication on remaining issues.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 98.251 after seeing an earlier high above 98.3.
The dollar rose as high as 109.205 yen, its strongest in two weeks, before settling back at 109.01 yen to show a gain of 0.1% from the previous close.
The yuan also rose to 7.240 to the dollar, about 0.15% higher than the previous close.
The euro softened to $1.1008, near the one-week low of $1.10035 touched on Monday.
Sterling traded at $1.2894, supported by hopes that the ruling Conservatives could win a majority in the Dec. 12 election to end a hung parliament.
Overall, currency trading is slowing down ahead of U.S. Thanksgiving holiday on Thursday.
Traders are also increasingly pricing in tighter trading ranges for major currencies, based on implied volatilities.
· According to data from the first six months of the year, most of the cost of higher US tariffs on China has been passed down to US consumers and firms.
“US consumers are paying for the tariffs …in terms of higher prices,” said Alessandro Nicita, an economist at the UN trade agency, UNCTAD. “Not only final consumers like us, but importers of intermediate products – firms which import parts and components from China.”
But the US-initiated measures – put in place in the middle of last year - have also hit the Asian giant, to the tune of $35 billion.
Its firms have seen exports of these targeted products fall by a quarter over the same period on average, with other competitors – notably Taiwan – picking up some of the slack ($4.2 billion in the first half of 2019).
Trade war is a global warning
“The results of the study serve as a global warning; a lose-lose trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth,” said UNCTAD’s director of international trade and commodities, Pamela Coke Hamilton. “We hope a potential trade agreement between the US and China can deescalate trade tensions.”
· Goldman Sachs says the trade war is a 0.5% drag on growth from quarter to quarter. Mark Zandi at Moody's Analytics says a new round of tariffs could tip the global economy into a recession.
Two options for Trump
As the clock ticks down, a source familiar with the state-of-play says there are now two options now on the table.
- The first option. More tariffs. Because the Chinese reneged on a broad deal in May and if they don't get a meaningful Phase One deal in October, the President puts new tariffs on Chinese imports in December and lets the current set of tariffs stand, "to defend American workers from Chinese aggression."
- The second option is mini deal the source called "not skinny but anorexic."
This is what is being sought by both the Chinese and Wall Street. The source says that deal involves more access to Chinese financial markets for Wall Street firms and soybean purchases from China, in exchange for rolling back September's round of tariffs and not implementing the tariffs scheduled for December.
· If Trump’s interest in the US-China trade war is flagging and a deal is near, what will the future look like?
The US president, preoccupied by domestic politics, and China, determined to persist in its deleveraging campaign, both seem ready for a trade-war truce
While fears of deglobalisation and global decoupling are overblown, the US may still divert trade away from China, at a cost to American consumers
· Public support for impeaching President Donald Trump has tracked steadily higher over the past few weeks while a U.S. House of Representatives committee held a series of televised impeachment hearings, according to a Reuters/Ipsos opinion poll released on Tuesday.
The latest poll, conducted on Monday and Tuesday, found that 47% of adults in the United States felt Trump “should be impeached,” while 40% said he should not.
A new CNN poll shows that half the country believes that President Donald Trump should be not only impeached by the House, but also removed from office by the Senate.
· The U.S. House of Representatives Judiciary Committee on Tuesday invited President Donald Trump to its first impeachment hearing, scheduled for Dec. 4, starting a new phase of the inquiry that could lead to formal charges against the president within weeks.
· U.S., Canadian and Mexican representatives are set to meet in Washington on Wednesday to discuss the trade deal to replace the North American Free Trade Agreement, Politico reported on Tuesday, citing people familiar with the plans..
· Oil prices edged higher after news that U.S. and Chinese officials discussed trade on Tuesday, while predictions for a weekly draw on U.S. crude stockpiles lent some support as well.
Brent crude, the international price benchmark, gained 60 cents, or 0.9%, to settle at $64.25, while West Texas Intermediate crude gained 40 cents, or 0.7%, to settle at $58.41.
· OPEC and Russia are likely to extend their oil production deal at least through midyear, but if they were to cut more output, as some speculate, it would blindside what has become a complacent market, analysts said.
The ministers head into the Dec. 5 and 6 meeting with oil prices near their highest levels in two months. OPEC and Russia and other allies have an ongoing agreement to reduce output by 1.2 million barrels a day, with the biggest cuts coming from Saudi Arabia.
Reference: CNBC, Reuters, CNN, UN News
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