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U.S. and China Phase One Deal to Stay in Place Despite Conflicts


The market tone through these last couple of weeks of trading has been very much about risk appetite, driving the riskier FX and assets to the upside.


It comes despite the high amount of uncertainty that was on the table within recent weeks, between the U.S. and China. The conflicts intensified given China’s pursuit to push forward with security legislation on Hong Kong. It resulted in Trump announcing the cutting of ties and the U.S. special relationship with Hong Kong.

The action taken from Trump was somewhat a relief for markets, not being as bad as it could have been, no disruption to the phase one deal. Donald Trump took things even further by banning Chinese airlines flights into the states, China decided not to retaliate.


What does this all mean for the markets?

In our view, we do not believe it is in either the interest of the U.S. or China to see phase one deal that was signed in January broken down. The deal right now more so for Trump is more precious, in the run-up to the U.S. elections in November. He will not want anything to jeopardize his chances of re-election, especially after some critics have come down on him with the handling of the most recent civil unrest and protests across the country.


Riskier FX such as; AUD, NZD, CAD are particularly likely to be bought on any downside dips, to push further north, so long as things do not escalate between the two world’s largest economies. U.S stocks indices have been driving higher aggressively recovering, as markets are not worried or foresee the worst as of yet, the same view here, for dips likely to be bought moving forwards.

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