London Open: The good news keeps reopening…

Market Analysis / 2 Min Read
Stephen Innes / 08 May 2020

Chinese new agency Xinhua reports that top trade negotiators from the US and China have talked by phone and vow to implement the 'phase one' trade deal, which is positive for risk.

 

The global grand reopening is starting to take shape, and investors are revelling at the ringing of department store cash registers, heading in the consumer-driven rebound. 

 

There’s been some interest in the negative impact of front-end US rates on the USD and the broader positive follow-through into risk sentiment via US equities. Indeed, the USD is showing broad-based weakness today as the market has turned the focus on negative interest rates. Although, one could probably argue that there are 4.7 trillion reasons why negative US interest rates could be risky business for the money market funds.

 

But investors might be more likely to flock to blue-chip dividend yields rather than risk the shift lowering front end rates, which would be a boon for stocks anyway. In addition to the trade war calm and the grand reopening theme, this too could play out favorably for US equity markets going forward.

 

Australia is set to be the latest country to begin easing restrictions on social contact and movement as the country's infections from the virus slow to a trickle. The government will loosen curbs in stages over four weeks; great news for the Australian economy continues to roll in.

 

Shopping malls and large retail outlets selling construction materials in Thailand will be allowed to reopen from May 17 if there is no surge in new coronavirus infections. China and South Korea, meanwhile, will be the first countries to be removed from a list of the Thai government's dangerous communicable disease zones, which will be the first glimmer of optimism the beleaguered Thai tourism has had in some time. 

 

There’s been extremely limited follow-through in FX to the Xinhua report that top trade negotiators from the US and China spoke by phone this morning and vowed to implement 'phase one' of the US-China trade deal. The lack of reaction in key China-sensitive crosses could reflect that USDCNH had already moved materially lower since Thursday's intraday high near 7.14 AUDUSD is also holding onto its gains from the past 24 hours.

 

The lack of follow-through also reflects limited trader conviction that the US will raise tariffs this year, given the cost constraints that US business is under. That’s not to say that China will not be a significant focus in the run-up to the US Presidential election – it will.

 

Playing the China card is good populist politics for both President Trump and Democratic nominee Joe Biden, but expecting this to lead to higher tariffs is a stretch until a US economic recovery is in full swing and probably after the election has passed.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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