An Emerging Agreement
Negotiations are still ongoing for the free trade agreement involving 16 Middle Eastern and Pacific countries, including China, Japan, India and Australia. If the parties can come to terms, then the result could be the world’s largest economic cooperation in terms of trade volume. The countries representatives met yesterday in Singapore. Participants spoke optimistically following the summit’s conclusion, foreseeing the possibility of a final agreement by lat 2018 or early 2019. Analysts suggest that due to the pressure caused by recent changes in US trade policy, the agreement may be vital to preserving stability in the region. Consequently, all parties involved have a vested interest in seeing the deal succeed.
Trump Toughens Up
According to a statement Trump made to Bloomberg, US President and his administration are both firmly determined to stand against China as well as somewhat dissatisfied with the stance European countries have taken on the issue. The President’s announcement brought the 4 day long rising market trend to a halt, making US indices experience a minor drop. Asian exchanges were much more sensitive to the enactment of Trump’s tariffs, resulting in a 1% drop for the Hang Seng. The Shanghai Composite and the Australian index also suffered losses of 0.46% and 0.51% respectively. Meanwhile the US dollar shows a mixed picture, weakening against the yen and the franc, at the same time strengthening against the Canadian and Australian dollar. The price of oil on the other hand continues to rise, with WTI now being above 70 dollars.
EURCHF
The current trajectory of the EURCHF currency can be described as a definite downwards trend. The number of buyers for the franc has noticeably increased in the past few weeks, causing it to strengthen not only against the euro, but other currencies as well. This phenomenon clearly illustrates how factors other than differences in interest rate need to be considered when determining the relative strength of currencies. In theory with world’s lowest negative base interest rate of .0.75%, the franc should be experiencing sever major weakening, however, there are no actual signs of that happening on the market.
Investors value stability, especially with the weakening of peripheral currencies and the number of counties suffering economic crises. The latest data suggests Switzerland boasts a 1.2% and so called‘full employment’ which translates to a 2.4% unemployment rate. Economists consider this level of unemployment a healthy labor reserve. Another worthwhile stat is Switzerland’s national debt being 30% of their yearly GDP. These prospects mean the euro has a long way to go before it can compete with the franc. Looking at the 4 hour charts, over the past 3 days there was only a single candle where the euro closed higher than it opened. This ongoing decline reached the pair’s major 1.1266 support line. Although price stopped at this level, it is highly probably that this is only a temporary situation. The trendline suggests a continued downwards movement, although it’s possible that there may be a period of consolidation before price attempts to break the support line again.
Soybeans
We’ve talked on many occasions about China’s retaliatory measures since the start of the trade war and the potential damages they could cause to US agriculture. Soybeans have been at the center of this discussion, since China has alluded to the possibility of completely halting the import of US soybeans. This could prove especially devastating due to this season’s seeds already having been sown, making farmers unable change their chose of planted crops.
It also carries the possibility of a massive surplus on the soy market. According to an August 29 US Department of Agriculture (USDA) report, the export of soybeans declined by 10% or approximately 3 million tons. The USDA report also predicts a record harvest this year, which under normal circumstances could push prices further down. Despite the price of soy futures being at a historic low, only few analysts recommend taking long positions. As tempting as the opportunity may seem, the exceptionally negative outlook for the products fundamentals warrants some caution as price could likely still decline further. To make matters worse, the third largest global soy producer, Argentina, is going through a currency crisis, making Argentinian soy that can be bought cheaply much more competitive.
Sincerely,
Laszlo | Market Analyst
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