UBS On-Air: Paul Donovan Daily Audio 'Less tense?'
At a Glance
The desk views the recent easing of trade tensions between the US and China as a positive development for market sentiment and certain currency pairs, notably the USD. Per the full note from UBS, trade negotiations are reportedly moving to a 'dial down' phase, with significant tariffs on Chinese goods being re-evaluated ahead of a key meeting between Presidents Trump and Xi. This sentiment is underscored by the prospect of China potentially resuming purchases of US soybeans, a noteworthy change in trade dynamics that could buoy USD strength against other currencies. Given that there are no immediate calendar catalysts, traders may find potential in capturing volatility around real-time trade updates and political communications.
Key Takeaways
- 01US-China trade tensions are easing, potentially benefiting the USD.
- 02Recent CPI data showed inflation moderated below expectations, affecting sentiment.
- 03China may resume soybean purchases from the US, altering trade dynamics.
- 04No immediate calendar events could disrupt the current assessment.
Full Analysis
What the desk is arguing
The desk assesses that the dialed-down trade tensions could pave the way for a stronger USD, particularly against currencies influenced by China's economic health. Per the full note from UBS, the elimination of the imminent 100% tariff threat signals a relief for US consumers and potentially stabilizes US-China trade relations.
Supporting this bullish view on the USD, the recent consumer price inflation data showed a lower-than-expected uptick at 1.4% for September, as reported by UBS. The observation of delayed Chinese purchases of US soybeans, in contrast to their ongoing imports from Argentina, serves as a key indicator of shifting trade patterns that could favor US economic recovery.
Where it sits in our coverage
The overall bullish outlook for the USD aligns with our consensus target of 1.075 against the Euro. This falls within a range of 1.04 to 1.12, with specific targets noted by key firms: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
While jpmorgan and the desk’s outlook converge on a strengthening USD, bofa maintains a more cautious stance that suggests a potential challenge to bullish expectations.
How other firms see it
Firms such as jpmorgan and cs hold bullish positions on the USD, aligning with the desk's view. Meanwhile, bofa takes a contrarian stance, offering a broader range of expectations that could see the Euro outperform the dollar.
Traders should keep an eye on USD/CNY as an immediate barometer, providing insights into the outcomes of US-China policy shifts. Additionally, developments regarding soybean trade will feed into broader supply chain sentiment across emerging markets.
Market Implications
Watch for any updates from the upcoming meeting between Presidents Trump and Xi, as developments could lead to increased volatility in key currency pairs. Current levels around 1.075 against the Euro will be crucial to monitor as sentiment shifts.
From the original
Trade tensions between the US and China appear to have moved into a “dial down” phase after the recent escalation. While details will probably not be given until the proposed meeting between US President Trump and China’s President Xi later this week, the threatened 100% tariff o
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