Key macro events are overbearing on markets into this week. The US mid-terms are a major near term volatility factor, along with the US/China trade dispute, FOMC monetary policy and as ever, Brexit. We look at the key factors to consider for forex, equity markets and commodities.
Call me an old cynic, but the odds of Donald Trump pulling a rabbit out of the hat on China just before the mid-terms cannot have been long. After more than six months of wrangling over trade tariffs and hawkish rhetoric, Trump seemingly makes one phone call to President Xi and suddenly there is traction for a potential deal. Five days away from crucial mid-term Congressional elections, voters have some good news to take with them to the poling booths. It is too early to know for sure, but if it is true then this could be a key turning point for markets. Since April (when Trump and his administration really ramped up the rhetoric on China with a string of trade tariffs) the dollar has gone on a tear and (global equity markets) have suffered amidst reduced risk sentiment and fears over global trade. If there is an agreement to now be priced in between the two global superpower economies this will allay many fears that have stymied sentiment. It would mean that a key function of dollar strength would no longer be present and would likely begin to reverse. The strength of the Chinese yuan would be a good gauge to watch now. If USD/CNH (Chinese offshore yuan) begins to unwind it would be a signal that an emerging Asia recovery is forming again. US yield differentials are still a key factor here but it would not simply be one way traffic any more. Could it also remove the shackles that have been weighing down equity markets such as the German DAX too? A US/China agreement that prevents a lasting trade war would only be good for the global economy.
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