08/ 08/ 2019

Sterling Rout not yet Over as No-Deal Brexit Odds Jump

The euro edged higher against the U.S. dollar on Wednesday, as investors remained cautious on risk after the U.S. branded China a currency manipulator, escalating their trade war. The EUR/USD pair has posted a modest intraday advance approaching the weekly high of 1.1250 as the greenback resumed its decline. Trade tensions and fears about how it would affect economic growth remained in the spotlight, pushing investors into safety and away from the dollar.

Sterling declined against dollar , as investors further priced in the probability of Britain leaving the European Union without a deal in place. The UK government insists that will leave the EU on October 31 with or without a deal, but wants to reopen the Withdrawal Agreement, something that European representatives have repeatedly rejected.

Brexit worries and a U.S.-China trade war have increased concern about a global downturn and Britain’s economy has struggled to gain traction.

07/ 08/ 2019

U.S. Stocks Rebound as Chinese Yuan Stabilizes

A week has passed since the Federal Reserve attempted to calm fears about a U.S. economic slowdown with a 25-basis point rate cut and Fed Chair Jerome Powell refrained from endorsing additional rate cuts in September and December. Initially, the moves worked with Treasury yields inching higher, the U.S. Dollar firming and stocks heading higher. However, the reaction was short-lived as President Trump’s announcement of additional tariffs on China and its retaliation rekindled the very fears the Fed was hoping to dampen.

The U.S. futures are indicating a positive open on Tuesday morning. The moves comes after the PBOC backed off of its currency easing scheme. The Chinese Central Bank surprised most market watchers by pinning the midpoint for the yuan below the closely watched 7.00 level. Despite the move, the U.S. Treasury officially labeled China a currency manipulator raising the stakes in the trade war. 

It’s a relatively quiet day ahead on the Eurozone economic calendar. Germany’s industrial production figures for June are due out later this morning. With no material stats due out of the U.S, we will expect some market sensitivity to the numbers. Outside of the numbers, geopolitical risk will continue to provide direction. With a currency war now afoot, the markets will closely watch the direction of the Yuan early on.

06/ 08/ 2019

Geopolitics Remains the Market Mover

The U.S. market is down sharply in early Monday trading after China raises the stakes in the trade war. Last week President Donald Trump broke the trade-truce by raising tariffs 10% on $300 billion worth of Chinese goods. The move came as a surprise and spurred retaliation from China. China has allowed its single currency the Yuan to fall to its lowest levels versus the dollar in over ten years. By lowering the value of the yuan China hopes to offset the impact of tariffs but opens a new set of problems. China has long been considered a currency manipulator and this move does not help that image.Meanwhile, the European indices were broadly lower at midday on Monday after Trump and China escalated the trade war. 

Early today, the RBA delivered its August interest rate decision and rate statement, in line with market expectations, the RBA held rates unchanged at 1.00%. 

It’s a relatively quiet day ahead on the Eurozone economic calendar. Geopolitical risk also continued to provide direction. The U.S administration’s labeling of China as a currency manipulator in the early hours hit the markets early on. A pick up in the Chinese Yuan eased market tensions through the session, however.

05/ 08/ 2019

Week Ahead | Brexit, Central Banks, Trade and Stats to Drive the Market

It was quite a week for the majors. A hawkish FED rate cut and Trump tweeting tested the majors on the week. A busy economic calendar was also in focus.

The sudden escalation of US-China trade war dominated Fed’s rate cut last week. As the trade talks in Shanghai yielded no constructive result, Trump announced to impose 10% on USD 300B in Chinese imports, effective September 1st. The list include practically all untaxed Chinese goods, which should have much more direct hit to US consumers. China typically responded with hard-line comments, vowing to fight back with counter-measures. Additionally, trade tensions between Japan and South Korea also intensified, with both countries planning to take each other from the trade whitelist. That’s seen as a huge blow to the global tech supply chain.

It’s a busy looking week, from UK & Japan 2Q GDP report will be released, outside of the numbers, expect geopolitics to continue to drive the majors. The markets will need to continue to monitor trade war chatter, Iran, and Brexit. Central bank announcements likely to be the big market movers. The RBA and RBNZ meet this week and they are both looking at an easing bias. Unlike the RBA who is widely expected to leave rates on hold, the RBNZ is looking at a cut.