• The dollar rose to a two-month high against the safe-haven Japanese yen and advanced modestly against the euro on Tuesday as investors appeared to discount rising trade-related tensions between the United States and China.
In currency news, the U.S. dollar index, which tracks the greenback against a basket of currencies, was off its previous high at 94.640 as of 6:53 a.m. HK/SIN.
The Japanese yen was largely flat against the dollar at 112.35
• China and the United States plunged deeper into a trade war on Tuesday after Beijing added $60 billion of U.S. products to its import tariff list in retaliation for President Donald Trump’s planned levies on $200 billion worth of Chinese goods.
• Traders will be paying attention to next week’s Federal Reserve meeting at which the U.S. central bank is expected to raise benchmark interest rates and shed light on the path for future rate hikes.
• “Short term it is a little bit of a positive, but longer term there is a greater fear of material negative effects to the overall economy,” said Minh Trang, senior foreign currency trader at Silicon Valley Bank in Santa Clara, California.
• Dutch bank ING estimates that 2.5 percent of world trade is now affected by the tariffs and it will reach 4 percent if Trump carries out threats to put levies on all of China’s exports to the United States.
• China and the United States plunged deeper into a trade war on Tuesday after Beijing added $60 billion of U.S. products to its import tariff list in retaliation for President Donald Trump’s planned levies on $200 billion worth of Chinese goods.
On Monday, the U.S. administration said it will begin to levy new tariffs of 10 percent on about $200 billion of Chinese products on Sept. 24, with the tariffs to go up to 25 percent by the end of2018.
Beijing will impose levies on a total of 5,207 U.S. products - ranging from liquefied natural gas to certain types of aircraft as well as cocoa powder and frozen vegetables - at 5 and 10 percent, instead of previously proposed rates of 5, 10, 20 and 25 percent, the finance ministry said.
• China is not afraid of “extreme measures” the United States is taking in their trade war and will use it as an opportunity to replace imports, promote localization and accelerate the development of high-tech products, state media said.
• China's holdings of U.S. Treasury bills, notes and bonds dropped to a six month low of $1.171 trillion in July, from $1.178 trillion in June.
The data is closely watched, since dumping Treasury securities is viewed as one way China could retaliate against the U.S. in an ongoing trade dispute, but bond strategists are skeptical China is really trying to send a message this way.
China is the biggest holder of U.S. Treasurys, followed by Japan. Japan's holdings rose to $1.04 trillion from $1.03 trillion in June.
• Strategists say China is much more likely to retaliate against U.S. tariffs by slapping its own tariffs on American goods, which it has done. Some market pros believe China would use its currency as a weapon before it would dump Treasurys.
• Markets are starting to believe that U.S. President Donald Trump may just carry out his threat to impose duties on all Chinese imports, said the CEO of a private equity firm, who added that new tariffs could prompt investors to flee to safer options.
"The market is beginning to digest that President Trump will go all the way, and I think that China has to be prepared he will go all the way," Victor Chu, the CEO of Hong Kong-based First Eastern Investment Group, told CNBC at the World Economic Forum on Tuesday.
"I think the market will continue to be nervous, I think the equity players will want to have flight for liquidity and safe haven, and it's very easy for them to liquidate portion of the equity position," Chu said, commenting on the latest round of tariffs being imposed.
• The Bank of Japan is expected to keep monetary policy steady on Wednesday and maintain its optimistic view on the economy, even as escalating global trade frictions threaten to chill growth.
• The U.S. Senate voted overwhelmingly on Tuesday to pass a mammoth spending package including $675 billion for the Defense Department and a measure to keep the entire federal government open until Dec. 7, a step toward avoiding a Sept. 30 shutdown.
The Senate voted 93 to 7 for the $855 billion package, combining the two largest annual spending bills - for the Labor, Health and Human Services and Education departments as well as the Pentagon.
• Leaders of South and North Korea plan to announce steps aimed at rekindling stalled nuclear talks and deepening bilateral ties after they meet for a second day of summit talks on Wednesday in the North’s capital Pyongyang.
A joint statement expected from the two leaders at the conclusion of their talks on Wednesday will provide clues to whether negotiations between North Korea and the United States over dismantling Pyongyang’s nuclear programs could regain momentum.
• The United Kingdom and the European Union are close to agreeing an orderly Brexit, British Prime Minister Theresa May wrote in a German newspaper on Wednesday, urging the European Commission to evolve its position for the sake of a deal.
• Business and political leaders are increasing the pressure on Canadian Prime Minister Justin Trudeau to agree on a deal to renew NAFTA and drop his insistence that no deal is better than a bad deal.
Foreign Minister Chrystia Freeland will hold fresh talks on the North American Free Trade Agreement with U.S. Trade Representative Robert Lighthizer in Washington on Wednesday as a U.S.-imposed deadline of Oct. 1 looms.
• Oil futures rose more than 1 percent on Tuesday on signs that OPEC would not be prepared to raise output to address shrinking supplies from Iran, and as Saudi Arabia signaled an informal target near current levels.
Brent crude LCOc1 futures rose 98 cents, or 1.3 percent, to settle at $79.03 a barrel.
U.S. West Texas Intermediate (WTI) crude CLc1 gained 94 cents to settle at $69.85 a barrel, a 1.4 percent increase.
• Bloomberg reported on Tuesday, citing unnamed Saudi sources, that the kingdom was currently comfortable with prices above $80 per barrel, at least for the short term.
• Bloomberg reported that while Saudi Arabia had no desire to push prices higher than $80, it may no longer be possible to avoid it. U.S. sanctions affecting Iran’s petroleum sector are due to come into force from Nov. 4.
• Reuters previously reported that Saudi Arabia wants oil to stay between $70 and $80 a barrel for now, as the world’s biggest crude exporter strikes a balance between maximizing revenue and keeping a lid on prices until U.S. congressional elections.
• Russian Energy Minister Alexander Novak said an oil price between $70 and $80 was temporary and sanctions-driven, adding the long-term price would stand around $50 a barrel.
Reference: Reuters, CNBC
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