World Trade Still Falling

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Need For Trade Talks Resolution Still Growing

The pressure for an end to the US-China trade war which has been raging now for just shy of two years continues to build.

The latest CPB World Trade Monitor data showed that global trade contracted 1.3% in September. This fell into negative territory from the prior reading of 0.5% in August.

The release from the CPB comes on the back of a series of downward revisions to global growth forecasts from the IMF this year. The group now expects global growth to hit its lowest levels since the financial crisis. A plethora of central banks has shared this view over recent months. And many of them are also revising growth forecasts lower.

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Signing Date Still Due

The US and China had been scheduled to sign off on the phase-one trade deal at the APEC meeting in Chile. However, the meeting was canceled amidst the outbreak of protests and disorder in Chile.

With no new signing date agreed, the markets began to show concern as talks appeared to lose momentum. Speaking last week, Trump was keen to reassure markets that a deal was still coming. However, his tone and comments once again prompted uncertainty.

High-Level Talks Continue

This week, however, risk appetite lifted in response to reports that high-level officials from both sides engaged in telephone calls to keep negotiations moving.

The Chinese Commerce Ministry noted on Tuesday that Chinese Vice Premier Liu He, US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer spoke on the phone.

They discussed “core concerns” and “reached a consensus on how to resolve these issues”. The calls reportedly ended with the two key negotiators committing to keep in close contact and keep talks moving forward.

“Core Issues”

One of these “core issues” is China’s demand that all existing trade tariffs be removed.

This was a major obstacle to talks earlier in the year. And, with the US still adamant that it won’t roll-back tariffs, it is hard to see how this will be resolved. However, for now, both sides appear confident that a deal is coming.

Last week, President Xi Jinping of China told a US business delegation in China that Beijing is committed to working “for a phase one agreement on the basis of mutual respect and equality”

Global Manufacturing Remains Weak

The recent spate of weakness in global manufacturing PMIs has also shone a light on the increasing need for an end to the trade standoff.

With manufacturing readings in the US, UK and the eurozone sitting in contractionary territory (by most counts), the impact of the trade war is clearly visible.

The next round of Chinese manufacturing data is due this month. And, after the last reading showed factory activity falling for a fifth straight month, any further weakness will add weight to the pressure on China to sign a deal.

Technical Perspective

usdcnh

The rally in USDCNH over the last month is starting to show signs of topping out. Price has recently continued higher within the local bull channel. However, the RSI indicator has been moving lower, highlighting bearish divergence. Price has now started to stall and although the channel low is holding, for now, there is a risk of a break lower. This puts focus on the longer-term structural support and major psychological level of 7.0000.

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