· The dollar hit its highest level in two years and the yen rose half a percent on Thursday as economic and political uncertainties swept through Europe and Asia, pinning down the euro and the yuan.
Worries over German manufacturing, the impact of a trade war on Asian economies and deepening concerns over Brexit and European parliamentary elections have broadly curbed risk appetite and sent investors to perceived safe-haven assets.
· “Safe havens were the currencies of choice as confidence in global growth faltered,” said Joseph Manimbo, senior market analyst at Western Union Business Solutions. “The greenback and safer rivals from Japan and Switzerland were in the driver’s seat.”
While the United States is not without its own worries - namely trade conflict with China - investors see the greenback as a relative safe haven because of its preeminence in the global economy and the extra cushion of having some of the highest interest rates in the developed world.
· The dollar hit a high of 98.371 against a basket of six major currencies, its highest since May 2017. If it maintains its path, the dollar will be on track for a fourth consecutive month of gains.
The euro dipped to its lowest in a month at $1.111 before recovering slightly to $1.114.
Compounding these worries, European parliamentary elections began on Thursday with euroskeptic parties expected to do well, raising concerns about the single currency’s stability.
The yen also advanced broadly as persistent U.S.-China trade fears and Brexit concerns fanned risk aversion. The yen was 0.57% firmer at 109.71 to the dollar, having pulled back from a two-week low of 110.675 plumbed on Tuesday.
· The yield on the 10-year Treasury note fell Thursday to its lowest level since 2017 as Wall Street became more nervous that the U.S.-China trade war could drag on longer than expected.
At around 1 p.m. ET, the yield on the benchmark 10-year Treasury note fell 9 basis points to 2.308%, its lowest level since Nov. 8, 2017. The yield on the 30-year Treasury bond dropped 8 basis points to 2.742%, its lowest level since December 2017.
Both the 2-year Treasury note yield and the 5-year Treasury note yield fell 10 basis points Thursday.
Yields extended their declines after financial data firm IHS Markit said the U.S. manufacturing Purchasing Managers Index fell to 50.6 in May, the lowest reading since September 2009.
· “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” said Chris Williamson, Markit’s chief business economist.
· The latest fight between Washington and Beijing worsened after U.K.-based semiconductor designer Arm Holdings said it suspended business with Huawei to comply with the U.S. blacklisting of the telecom company. Panasonic, Vodafone and BT Group have also adjusted their businesses to comply with U.S. stipulations.
· U.S. tariffs on Chinese goods are hurting an unintended target as the trade war rages, an International Monetary Fund study found.
The study, released Thursday, said that tariff revenue collected from levies on Chinese goods “has been borne almost entirely” by U.S. importers.
President Donald Trump claimed on May 8 that the higher levies on Chinese goods are “filling U.S. coffers ” to the tune of $100 billion per year. But the IMF said the bilateral trade deficit between China and the U.S. remains “broadly unchanged” even with the tariffs.
Trump has also raised the possibility of raising tariffs on an additional $300 billion in Chinese goods. This, according to the IMF, could hurt consumers as companies are likely to pass on the additional cost.
“Consumers in the US and China are unequivocally the losers from trade tensions,” the IMF report said, adding higher tariffs could also hurt economic growth. “While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardize the projected recovery in global growth in 2019.”
· President Donald Trump left little doubt on Thursday that he is willing to negotiate tough U.S. restrictions on the Chinese telecom giant Huawei as part of a broader trade deal with Beijing, a position that could put the president at odds with members of his own administration.
“It’s possible that Huawei would be included in a trade deal,” Trump said during a freewheeling impromptu exchange with reporters at the White House on Thursday afternoon. “If we made a deal, I can imagine Huawei being included in some form or some part of a trade deal.”
· The latest U.S. actions on trade are preventing negotiations with Beijing from proceeding, China’s Commerce Ministry said Thursday.
“If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue,” Ministry of Commerce spokesperson Gao Feng said Thursday in Mandarin, according to a CNBC translation.
U.S. West Texas Intermediate crude futures settled $3.51 lower at $57.91 per barrel, tumbling 5.7% to the lowest closing price since March 12. WTI is on track to end the week 7.7% lower and post the worst weekly performance in five months.
· Oil markets stabilized on Friday amid OPEC supply cuts and tensions in the Middle East, after posting their steepest falls since the start of the year earlier in the week on the back of a global economic slowdown and swelling fuel inventories.
Brent crude futures, the international benchmark for oil prices, were at $68.05 per barrel at 0044 GMT, up 29 cents, or 0.4 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 36 cents, or 0.6 percent, at $58.27 per barrel.
“Multiple supply risks remain, as tension continues between Iran and the U.S., which could turn disruptive,” ANZ bank said on Friday.
Reference: CNBC, Reuters
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