· The U.S. dollar weakened against the Japanese yen on Tuesday as foreign exchange traders sought out safe-haven assets and placed bets on increasing currency volatility after President Donald Trump threatened to impose additional tariffs on Chinese goods.
The yen was trading at its strongest since March 28, last at half a percent better on the day at 110.20 per dollar. The Swiss franc and longer-dated Treasury bond prices were also buoyed as investors moved into high-quality assets.
The demand for yen bolstered the volatility index measuring moves in and out of the Japanese currency. The Chicago Board Options Exchange’s Japanese Yen Volatility Index was last up 12.67%.
The price on other currency-related volatility products also rose. The euro index was up 4.75% on Tuesday and up 11.17% from Friday. The British Pound Volatility Index was last up 3.52%.
The offshore yuan on Monday had been on course for its worst daily drop in 10 months, briefly touching a four-month low of 6.8218, but it later recovered some of those losses while remaining under pressure. It was last down 0.43% at 6.801 yuan per dollar.
The dollar index was 0.08% higher, last at 97.60, with the dollar 0.10% stronger against the euro at $1.118 .
· U.S. government debt prices rose on Tuesday, as investors remain concerned about President Donald Trump’s threat to hike tariffs on Chinese goods as soon as Friday.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, fell to 2.444%, the lowest level since April 1, while the yield on the 30-year Treasury bond was also lower at around 2.87%.
· Investors are worried the U.S. and China may not find enough common ground to head off a new round of tariffs later this week that could bite into global growth, squeeze profit margins and drive down stock prices.
Trade negotiators are scheduled to meet this week in Washington, but recent tensions make it less likely a deal will be agreed to before the Trump administration unleashes a new round of tariffs. Analysts say a deal is still possible, but the risks have risen that there will be more tariffs before a deal can be agreed, and it could then take a lot longer than expected for an agreement to be hammered out.
Analysts said the threat of new tariffs puts assumptions about the market at risk, including the expectations for 3% earnings growth this year. Earnings in the first quarter grew at 1.2%, much better than earlier estimates for a decline, and second quarter S&P 500 earnings growth is expected at 1.5%, according to Refinitiv.
Global equity markets could also take a hit, as global growth would expected to slowdown on another round of tariffs.
· A few Bank of Japan board members said the central bank must pay attention to the impact that its prolonged ultra-loose monetary policy was having on regional banks’ profits, minutes of their rate review in March showed on Wednesday.
The negative impact of ultra-easy policy on regional banks’ profits and equity capital could “gradually materialize” and prompt more banks to take excessive risks to secure profits, those board members were quoted as saying.
· The U.S. House of Representatives on Tuesday unanimously backed legislation supporting Taiwan which faces military and diplomatic pressure from China as members of the U.S. Congress push for a sharper approach to relations with Beijing.
There was no word on when the Assurance Act might come up for a vote in the Senate, which would be necessary before it could become law.
· U.S. Secretary of State Mike Pompeo made an unannounced visit to Baghdad on Tuesday and met with the Iraqi prime minister after telling reporters the United States was concerned about Iraqi sovereignty because of increasing Iranian activity.
“I wanted to go to Baghdad to speak with the leadership there, to assure them that we stood ready to continue to ensure that Iraq is a sovereign, independent nation,” Pompeo told reporters en route to Baghdad to meet with Iraqi Prime Minister Adel Abdul Mahdi.
· Iran will reduce some “voluntary” commitments within its nuclear deal with world powers as a response to members’ inability to resist U.S. pressure, but will not withdraw from it, state media on Wednesday quoted Foreign Minister Mohammad Javad Zarif as saying.
Iran’s state media said earlier Tehran would write to the countries still signed up to the deal - U.S. allies Britain, France and Germany as well as Russia and China - on Wednesday to give them details about plans to “diminish its commitments” under the deal.
· Oil prices tumbled on Tuesday as renewed doubts over U.S.-China trade talks stoked concerns over global growth, but U.S. sanctions on Iran and Venezuela tightened supply and helped to stem losses.
U.S. President Donald Trump on Sunday said he would raise tariffs on $200 billion worth of Chinese goods from 10-25% by Friday. The comments dragged on both Asian and U.S. stock markets.
U.S. West Texas Intermediate crude futures settled 85 cents lower at $61.40 per barrel, dropping 1.4% to the weakest closing price since March 29.
Brent crude oil futures fell $1.31, or 1.8%, $69.93 per barrel around 2:30 p.m. ET (1830 GMT), on pace for the lowest settle since April 4.
Reference: CNBC
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