· The Japanese yen surged to a three-month high against the dollar on Thursday, with the Swiss franc at a one-month high as investors sought out the safe-haven currencies, fearing the U.S.-China trade conflict will escalate.
Two days of negotiations begin in Washington on Thursday, and traders are waiting to see whether Chinese and U.S. officials can salvage a deal to prevent more U.S. tariff increases.
Currency moves this week in response to the latest trade hostilities have been fairly muted, but Thursday's jump in the yen and the Swiss franc - which tend to attract demand in times of strife - suggested investor nerves have begun to fray.
The yen was more than half a percent stronger in mid-morning trade, last at 109.53 to the dollar, the fewest since Feb. 4. The dollar bought 1.013 Swiss francs on Thursday, the weakest against that currency since April 18. Some investors predicted both safe-havens have further to run.
The dollar index was 0.37% lower, last at 97.263, as the yuan fell 0.75% to a four-month low of 6.858 and was headed for its worst four-day decline in a year.
· Renewed trade war fears triggered a bond market recession indicator on Thursday.
The yield on the 10-year Treasury note fell below that of the 3-month bill Thursday morning, inverting part of the yield curve. The yield curve is the plot of interest rates of bonds having equal credit quality but differing maturity dates. An inversion has been a reliable recession indicator in the past, though there is a debate over which segment of the curve is most important.
By Thursday afternoon, the yield curve between the 3-month bill and 10-year note had steepened and was no longer inverted. At 4:22 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.451%, while the yield on the 3-month Treasury bill yield hovered at 2.432%.
· President Donald Trump said Thursday that tariffs are an "excellent" alternative to a trade deal with China, hours before Chinese officials were set to meet U.S. trade negotiators later in Washington.
Negotiators for the U.S. and China will meet at 5 p.m. ET, Trump said. He had set a midnight deadline to slap additional tariffs on China, though he has suggested that his administration might reverse its decision depending on progress in the negotiations.
"They'll see what they can do," Trump said at a White House event Thursday afternoon. "But our alternative is an excellent one."
China claimed it will retaliate if the higher levies are imposed. Yet the White House claimed on Wednesday China still wanted to make a deal, which kept the market temporary afloat for a day.
· China's top trade negotiator, Liu He, will meet with President Donald Trump's trade team on Thursday without the title "special envoy" for President Xi Jinping, a role he has held in previous talks, suggesting the vice premier may have diminished authority to make concessions that could be key to striking a deal.
· Top U.S. and Chinese trade negotiators concluded the first of two days of talks on Thursday to rescue a trade deal that is close to collapsing as Washington prepares to go ahead with plans to hike tariffs on hundreds of billions of dollars of goods imported from China.
President Donald Trump responded by ordering a tariff hike, and China has said it would retaliate. The 10-month-old trade war has already cost companies in both countries billions of dollars.
Before they get back around the table on Friday, the United States will have increased duties on $200 billion of Chinese goods, to 25 percent from 10 percent. The duties apply to cargoes leaving China after 12:01 a.m. EDT (0401 GMT) Friday.
Consumer products, including cell phones, computers, clothing and toys, are to be especially hard hit.
· Plans by Washington to hike tariffs on $200 billion of Chinese goods could cut China’s growth by 0.3 percentage points but the strengthening economy has become more resilient to external shocks, a Chinese central bank adviser said on Friday.
The Chinese stock market was also unlikely to see the same heavy sell-off it experienced last year after the trade war began, he said, adding that investors had previously been prone to overreacting due to an inability to judge the real impact of trade frictions and jitters over slowing economic growth.
· President Donald Trump on Thursday said he wasn't pleased to hear reports that North Korea had launched two short-range missiles overnight.
"They were smaller missiles, short-range missiles," Trump told reporters at the White House. "Nobody's happy about it, but we're taking a good look, and we'll see."
"The relationship continues, but we'll see what happens," Trump added. "They want to negotiate, they're talking about negotiating, but I don't think they're ready to negotiate."
· Oil prices came under pressure on Thursday as investors worried about slower crude demand if the United States and China fail to reach a trade deal, resulting in higher U.S. tariffs on Chinese imports that could hit economic growth.
The trade dispute between the world's two biggest economies and a sharp drop in global equity markets outweighed geopolitical tensions and supply cuts that have lowered global supplies from Latin America, Africa and the Middle East.
U.S. West Texas Intermediate crude futures settled 42 cents lower at $61.70 per barrel, set for a third week of losses.
Brent crude oil futures rose 2 cents to $70.39 a barrel on Thursday and were heading for their second consecutive weekly loss.
Reference: CNBC, Reuters
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