A certain amount of risk-off sentiment is normal for a Friday, but investors would understandably be a bit nervous going into the first weekend of December. The major event on tap is the G-20 meeting in Buenos Aires, and that could have a myriad of effects on the markets, and Forex.
While usually, the G-20 meeting is mostly pomp and circumstance, and an opportunity for politicians to compete at putting each other to sleep with long speeches, there are two important factors expected in this event that could influence the market.
In the sidelines of the event, US President Trump is expected to meet with China President Xi for the first one-on-one meeting since the start of the US-China tariff issue. While there is an expectation that some kind of agreement will be hammered out, it’s unlikely to be an end to the trade war. Hope is more centered on a potential tentative first step towards an agreement, such as holding off on further tariff hikes for a few months of negotiations.
Of course, there is no guarantee that anything positive will come out of it, but it is the best opportunity for both parties to make some sort of announcement. Even so, Trump as recently as November 29 was tweeting about his satisfaction with the tariffs, saying:
“Billions of dollars are pouring to the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go.”
Those last seven words are weighing on hopes of a speedy de-escalation of the trade war. Even though Trump also said that he was “close to doing something with China.”
Meanwhile China’s November Manufacturing PMI came in at 50.0, only technically in growth territory, and the lowest since July 2016. This dragged on Australian equities, as China is their largest trade partner.
A lack of progress in trade talks could lead to expectations of continued underperformance in China, dragging on the AUDUSD and NZDUSD – while on the other hand, at least a tentative agreement on something related to resolving the issue likely would translate into support, aside from a potential relief rally in US equities should signs of a deal emerge.
Is it the Fed or trade?
Following a softening in Fed Chair Powell’s tone on Wednesday in a speech in New York, US equities popped up, showing that at least part of the depression on the stock market was because of the Fed.
US stocks have subsequently moved higher, and the dollar weakened, but some of that enthusiasm has faded leading up to the G-20 meeting. Investors might be hedging for at least a correction on Monday if nothing of substance comes out of the Xi-Trump face-to-face.
The fade in enthusiasm, however, might not all be related to China. While Powell’s tone changed, the expected hike at the next meeting is still on the table, and the minutes from the last FOMC meeting showed that almost all governors are just as enthusiastic as ever to raise rates.
Russia and Ukraine
It’s not news that tensions between Russia and Ukraine have flared up again, and from a strategic perspective, it’s the ideal time for Russia: with the thermometers dropping in Europe, this is the time of year when Europe is most dependant on oil and gas exports from the East.
President Trump last night canceled a planned meeting with President Putin during the G-20 summit over the latest escalation, and with all the European leaders gathered in Buenos Aires, it would be a convenient opportunity to make some type of declaration regarding the situation.
If anything, a cold shoulder towards President Putin might be seen by analysts as a sign of potential action. That would implicate the Euro, Norwegian Krone and the Canadian Dollar (remember that Canada’s chief export is oil to the US).