With respect tot eh trade spat between Washington and Beijing, Cary Huang reported in the South China Morning Post a stark warning that that 'neither leader has agreed to anything more than they had previously" and that the "lack of a deadline to negotiate the final ‘10 per cent’ of sticking points betrays a lack of confidence that doing so is even possible."
Neither leader has agreed to anything more than they had previously, despite their agreement to return to the bargaining table. That says only that negotiators will continue to confront the same tough issues that derailed negotiations two months ago. Trump has said “in any event, China wants a deal”. But he has also ignored US interests in his desire to secure a deal. His surprising unilateral decision to partially reverse the block on Huawei may prove his eagerness, despite his decision receiving bipartisan opposition domestically over the threat posed by the Chinese telecoms giant. The ongoing tariff war has already done damage to both economies and hurt the credibility of both leaders. A full-blown trade war would be catastrophic as it may lead to the decoupling of the world’s two largest economies,"
Cary Huang wrote.
FX market implications
As for FX market implications, we need to get used to a tariff high environment and get used to trading in this environment. All eyes will be on whether China can weather the storm and what Fed Chairman Powell will have to say on the matter at this week's two-day testimony before Congress. He will likely reiterate the view that the Fed stands ready to sustain the current economic expansion. The minutes could well offer some more clarity on what would lead the Fed to lend support to the economy following a notable dovish shift at the May meeting. As for China, according to recent indicators, its economy suffered a worse-than-expected April and May and has limited room for policy easing at this stage to turn the situation around. The safe haven currencies such as Yen, CHF, USD, should find support due to on-going tensions and uncertainty while the AUD and Yuan will likely suffer.
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