• IMF offers some peace of mind but EUR could benefit on possible additional fiscal stimulus by China on carry unwind.
  • US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei.

We have recent headlines giving some peace of mind with respect to trade war angst whereby, the Internation Monetary Fund has stated that China's announced policy stimulus measures should stabilize 2019 growth provided there are no further increases in tariffs and the US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei – RTRS citing White House Commerce Dept' Officials.

Key IMF headlines notes:

  • Further trade tensions could put China's economic, financial stability at risk.
  • Additional fiscal stimulus by China would be warranted in the event of worsening trade tensions.
  • Agrees with staff assessment china's external position in 2018 was broadly in line with fundamentals.
  • Durable external balance requires addressing economic distortions that encourage excessive household savings; social safety net.
  • Some directors call for greater exchange rate flexibility, disclosures of forex interventions.

FX implications

The fact that the US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei is positive for risk and it accompanies earlier headlines of the same, to the contrary of those that were floated yesterday making for some cause for alarm. The Yen was the strongest coming into the sessions today but is off its lows of 105.26 at 105.56. However, there is a long way to go in trade risk and the IMF have noted that 'further trade tensions could put China's economic, financial stability at risk' – a supporting factor for CHF and the Yen. If we see a further unwinding of the carry, the Euro could also benefit.