Waiting for UK ruling
The focus today will be on the UK Supreme Court ruling on whether PM Boris Johnson acted unlawfully when he prorogued parliament. The key point is whether the five-week suspensions of Parliament was an abuse of power or standard political business? If deemed legal, Prime Minister Johnson will be emboldened and will again try to push the United Kingdom out of the EU by 31 October. The opposition might yell about a coup but when parliament returns on 14th Oct they will have significant issues including how to prevent Boris from defying the Benn Bill (triggering a hard Brexit). If ruled illegal, things get interesting. Parliament could be recalled by the speaker of the House John Bercow, however, there is also speculation that Johnson could call another suspension. What happens next is truly anyone guess. EURGBP price lingering is right in the middle of Boris Johnson hard Brexit and May pledge not to leave without a deal. The ruling will provide direction to GBP, but right now we can just wait.
Soothe before negotiations
Commodity traders must probably be delighted to notice the steep rise in soybean futures bolstered by the new tariffs waivers granted by Chinese authorities to state and private companies as well as China’s shipment deals amounting to as much as 600’000 tons of US soybeans. The latter is yet highly perceived as good manner as it occurs in concomitance with the recent decisions made by the US Trade Representative to exempt temporarily 400 Chinese products from duties imposed last year following deputy-level trade talks in Washington. Meanwhile, the recent decision made by the US administration to delay the visit of Chinese officials from US farms does not appear particularly relevant as minister-level trade negotiations involving Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin should start on 7 October 2019 with critical discord concerning intellectual property at center stage.
The recent news comes as comforting for US farmers who were pricing in the worst-case scenario of extra tariffs on soybean, pork and other farm goods no longer than a month ago. This should also give US President Donald Trump some relief ahead of November 2020 election race, considering the continued disappointment of rural voters following the introduction of tariffs of 25 percent on US soybeans and pork in July 2018, a major voting class in 2016 elections that helped propel his nomination. In details, Chinese firms are granted waivers on a total ranging between 2 to 3 million tons of US soybeans while US authorities exempted items ranging from materials, electrical equipment, chemicals, to steel-based products. In this constructive context, the People’s Bank of China appears relatively comfortable not to ease monetary policy for the time being after cutting the reserve requirement ratio by an additional 0.5 percentage point and releasing a total of over $126 billion earlier this month.
USD/CNY is expected to stay under pressure as PBoC guidance rate is set at 7.0729, largely below current range of 7.1040.
