Trade hopes calm markets
Equities recovered a bit, after news broke of a teleconference between US Trade Representative Robert Lighthizer, US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He. The troika are discussing the schedule of trade negotiations, and this has comforted rattled markets. Asian shares have moved to positive territory, led by China’s CSI 300 +0.48% while Hong Kong’s Hang Seng budged +0.07%. Japan’s Topix fell 0.91% to its lowest since May 2017 while the Nikkei 225 closed at -0.34%. US automakers Fiat Chrysler, Ford and GM are pushing the US government to restrain imports of Japanese cars. European shares are opening positively, despite worries about the ongoing drama of Brexit. GBP/USD is bouncing back from 1.2561 (10 December low) at 1.2619 and approaching 1.2660 short-term.
The arrest of Huawei CFO Meng Wanzhou on 1 December under order of US authorities, dampened optimism about Sino-American trade talks. Investors have run toward safe havens. Gold is up 2.33%, its highest in five months. The CHF and JPY gained 1.10% and +0.44% against the USD since last week.
Bank of India spikes rupee
USD/INR surged to 72.49 on unexpected news that the Reserve Bank of India’s Governor, Urjit Patel, has resigned. Patel said it was for personal reasons, but clearly, friction between the RBI and government was the real reason. A caretaker has been named until a permanent replacement is named. Watch for USD/INR to retest 70.
Changes in RBI staff are less of a worry for investors then the bank’s independence. With a shifting growth outlook, the credibility of policy makers is critical. There has been some improvement in INR, as local bond yields have retraced 10-15 basis points higher. However, the bigger clues will come on 14 Decembers at the next RBI board meeting. The RBI’s current easing bias does not support investing in INR. Markets are expecting weaker India growth in H1 2019, with lower inflation and a likely rate cut in Q3.
