Fixed Income Research & Macro Strategy (FIRMS) from Olivier Desbarres at 4X Global Research

  • The rapid escalation in a potential trade war between the United States and China over the past month continues to dominate the headlines despite proposed protectionist measures having yet to take effect.
  • US President Trump argues that the current trading set-up has led to the rapid rise in the United States’ trade deficit with China to a record high of $375bn in 2017 but whether this deficit is simply due to unfair Chinese trading practises is arguably open to debate.
  • What is perhaps less ambiguous, in our view, is that such protectionist measures would likely weaken global trade, consumption, corporate profits, investment and ultimately economic growth and exacerbate already acute geopolitical risks.
  • Indeed the pick-up in global GDP growth since end-2016 has gone hand in hand with accelerating growth in global trading volumes and even Germany, which ran a trade surplus of €244bn, is seemingly not impervious to concerns about a global trade shock.
Global GDP vs Global trade

Global GDP vs Global trade

  • This tit-for-tat between China and the United States, respectively the first and third largest trading nations in the world, and threat of a more globalised trade war continue to weigh on stocks and perhaps unsurprisingly US equity market volatility remains elevated.
  • However, global currency volatility remains low by historical standards. Volatility remains at the low end of its 12-month range for currency pairs against the US Dollar, with the exception of USD/JPY, USD/NOK and USD/TRY.
  • Muted currency volatility does not imply that currencies have been directionless. While the Dollar, Euro, Swiss Franc, Kiwi Dollar and even the Brazilian Real and South African Rand have done little in recent months, a number of developed and emerging market currencies populate the extremes.


  • We will in our next research note pinpoint explanatory factors for these relative currency performances and the implications for the FX market in coming months

For the full research note, a free 30-day trail is available.

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Ryan Littlestone

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