· The Chinese yuan dropped to its lowest levels against the U.S. dollar since December on Monday as the trade war between the United States and China escalated, with each country raising tariffs on the others goods.
China plans to impose higher tariffs on $60 billion worth of U.S. goods, the finance ministry said on Monday, after the United States announced a tariff hike on $200 billion of Chinese products on Friday. U.S. President Donald Trump said Beijing “broke the deal” by reneging on earlier commitments made during months of negotiations while China said on Sunday it would not swallow any “bitter fruit” that harmed its interests.
The yuan weakened to 6.92, its lowest level since Dec. 24. China is expected to intervene to stop any plunge through 7 against the dollar.
The U.S. dollar index, which tracks the greenback against a basket of its peers, traded at 97.300 after dropping to levels below 97.2 yesterday.
The Japanese yen, widely viewed as a safe-haven currency, traded at 109.15 against the dollar after strengthening from levels above 109.5 in the previous session.
· Investors are also focused on whether Trump will impose tariffs on imported cars and auto parts as talks continue with the European Union and Japan. Trump received a “Section 232” investigation report in February, widely believed to have concluded that car and auto part imports pose a risk to national security. The president’s 90-day deliberation period is due to end on May 18.
The market is expecting that the Trump administration will extend that deadline. If there is no indication that they will you could see equities take a bit of a pounding this week.
· Sterling was little changed on Monday after a newspaper report suggested the British parliament might still reach a cross-party deal on Brexit, though doubts about such an agreement kept the currency from gaining.
Up to 150 lawmakers from Britain’s opposition Labour party would reject an agreement that did not include a referendum confirming it, the Guardian newspaper reported shadow Brexit secretary Keir Starmer had said.
· Many members of the ruling Conservative party oppose a second referendum, but the fact talks are still being held is keeping sterling from booking losses, analysts said.
Sterling was flat at $1.30 against the dollar — roughly the middle of the $1.2851-$1.3190 range of recent weeks — and 86.53 per euro.
· Treasury yields fell on Monday as investors fled the equity markets for the relative safety of government debt, spooked by a soured trade relationship between the U.S. and China.
The flight to Treasurys sent long-term debt yields tumbling and inverted a portion of the yield curve, the set of interest rates of bonds having equal credit quality but differing maturity dates.
At 12:45 p.m. ET, the yield on the benchmark 10-year Treasury note dipped to 2.394%, under that of the 3-month Treasury bill at 2.418%. The 2-year yield also dipped to 2.182%. Yields move inversely to prices.
Inversions have preceded economic downturns in the past, though there is debate over which portion of the curve is the most important to monitor.
· China will raise tariffs on $60 billion in U.S. goods in retaliation for the U.S. decision to hike duties on Chinese goods, the Chinese Finance Ministry said Monday.
Beijing will increase tariffs on more than 5,000 products to as high as 25%. Duties on some other goods will increase to 20%. Those rates will rise from either 10% or 5% previously.
· President Donald Trump said on Monday that his administration was planning to provide about $15 billion in aid to help U.S. farmers whose products may be targeted with tariffs by China in a deepening trade war.
He did not provide more details on what kind of an aid package it would be.
· President Donald Trump said the latest round of retaliatory tariffs announced by China on Monday puts the United States in a great position and represents “a very positive step” in the ongoing trade negotiations.
China retaliated Monday against President Donald Trump’s latest shot in the trade war between the world’s two largest economies. Beijing said it would hike tariffs on $60 billion in U.S. goods to as high as 25%.
“I love the position we’re in,” Trump said, adding, “There can be some retaliation, but it can’t be very substantial by comparison.”
Trump also confirmed that he plans to meet with Chinese President Xi Jinping and Russian President Vladimir Putin at the G-20 summit in Japan in late June.
“We have the right to do [tariffs on] another $325 billion at 25% in additional tariffs” on Chinese goods, Trump said, but he added, “I have not made that decision yet.”
· Investors are losing faith that a U.S.-China trade deal could happen soon and are bracing their portfolios for a more prolonged battle that could hamper global growth.
· An escalation in recent days in the long-running trade dispute between the world’s two biggest economies has stoked fears of a global economic slowdown, causing a sell-off in stocks led by trade-sensitive names and a move into low-risk assets like U.S. Treasuries and gold.
Investor expectations that the Federal Reserve will hold off on raising interest rates for now and that the economy will remain stable have supported stocks as well and kept trade relatively calm.
· The United States kicked off the necessary process before Washington can impose tariffs on a new set of Chinese imports.
While President Donald Trump said as recently as Monday that he had still not decided whether he would slap tariffs on an additional $300 billion worth of Chinese goods, this sets the legal process in motion. The Office of the U.S. Trade Representative formally began that process with a proposal on Monday.
The USTR outlines a potential duty of up to 25% tariffs on China for goods with an annual trade value of roughly $300 billion. The committee will hold a public hearing on June 17 followed by another week for comments, meaning the earliest possible action for tariffs would be June 24. This gives the White House a window of time leading up to the G-20 Summit to decide.
· The Trump administration asked Congress on Monday to increase NASA spending next year by an extra $1.6 billion to accommodate the accelerated goal of returning Americans to the surface of the moon by 2024.
The increased funding request, announced by President Donald Trump on Twitter, comes nearly two months after Vice President Mike Pence declared the objective of shortening by four years NASA’s timeline for putting astronauts back on the moon for the first time since 1972.
· Oil futures fell on Monday with Wall Street, as worries about the Sino-U.S. trade talks spooked investors who had sent oil higher in early trade on concerns that tanker attacks in the Middle East could disrupt supplies.
Brent crude futures were down 42 cents at $70.20 a barrel. U.S. West Texas Intermediate (WTI) crude futures settled down 1%, or 62 cents, at $61.04.
Oil was pressured by a slump in stocks and other risk assets as investors moved into safe havens like Treasury bonds due to the intensifying U.S.-China trade war.
Reference: CNBC
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