· The dollar edged away from two-year highs on Friday after weak U.S. manufacturing activity data sparked worries that the trade conflict with China may hurt the world’s largest economy and affect the currency’s safe-haven status.
Against a basket of six major currencies, the dollar was down 0.2% at 97.686 in early European trade and 0.7% off a two-year high of 98.371 hit the previous session.
The fall followed overnight data showing manufacturing activity hit its lowest level in almost a decade in May, suggesting a sharp slowdown in U.S. economic growth was under way.
· New orders for U.S.-made capital goods fell more than expected in April, further evidence that manufacturing and the broader economy were slowing after a growth spurt in the first quarter that was driven by exports and a buildup of inventories.
Up to now, the bulk of the pain from the trade war has been felt in Asia, with economies from Singapore to Thailand all posting poor numbers.
· The renewed trade tensions are expected to weigh on exports, which earlier this year had benefited from increased Chinese purchases of American goods. Industrial production dropped in April and a measure of factory activity declined to a near 10-year low in May.
Second-quarter GDP growth estimates are below a 2% annualized rate. The economy expanded at a 3.2% pace in the first quarter.
· The dollar weakness helped sterling recover slightly from a 4-1/2 month low while the euro briefly inched above $1.12 to hit a one-week high.
Against the yen, the dollar edged down to 109.50 yen, extending losses overnight, when it gave up two-thirds of a percent, its steepest drop in a single session in two months.
· The euro barely budged in early Monday trade after pro-European Union parties held on to two-thirds of seats in the EU parliament elections, limiting gains in nationalist opponents.
The common currency was little changed at $1.1210 in Asian trade and off a two-year low of $1.11055 touched on Thursday, as the markets studied the outcome of the vote.
· The results dented the hopes of anti-immigration, anti-Brussels National Rally led by Marine Le Pen, Italian Deputy Prime Minister Matteo Salvini and others who have been opposing attempts to forge closer EU integration.
· Long-term government debt yields were set to finish the week near multiyear lows, held down by mounting concerns that the trade war between the U.S. and China could persist longer and curb GDP growth more than first thought.
The yield on the 10-year Treasury note posted a marginal gain in Friday’s session after falling 10 basis points to a low of 2.292% on Thursday, its lowest level since Oct. 16, 2017. The 30-year U.S. bond yield also ticked higher on the week’s final day of trading after tumbling about 8 basis points to its lowest reading in more than 17 months on Thursday.
The 10-year yield and the 30-year yield last traded at 2.324% and 2.753%, respectively. The 3-month Treasury bill returned 2.349%, keeping a portion of the yield curve inverted.
· President Donald Trump criticized the Federal Reserve for raising interest rates, claiming that economic growth in the U.S. would have been higher than 3% and the stock market would be 7,000 to 10,000 points higher.
“But they wanted to raise interest rates,” Trump said, according to CNN. “You’ll explain that to me.”
Trump was speaking at a meeting of Japanese business leaders in Tokyo during his state visit to Japan on Saturday. The president has made similar claims in the past.
· China is currently the largest holder of U.S. government debt. It now owns $1.12 trillion in U.S. Treasury bonds.
If China decided to sell off its U.S. government debt holdings as a form of retaliation in the ongoing trade war with the U.S. and President Donald Trump, it could upend global financial markets and drive U.S. interest rates higher.
That’s a measure some have started calling China’s “nuclear option.”
China, however, has several reasons why it might not weaponize its bond holdings anytime soon.
· President Donald Trump, on the first day of his state visit to Japan, dug at Tokyo for what he called a “substantial advantage” in trade and asked Japanese businesses to invest more in the United States.
“Japan has had a substantial advantage for many, many years, but that’s okay, maybe that’s why you like us so much,” Trump said during a meeting with Japanese business leaders in Tokyo.
The president said Tokyo and Washington were “getting close” to a deal that would address the U.S. trade deficit. The U.S. had a deficit of $56.8 billion in goods and services with Japan in 2018, according to the U.S. Trade Representative.
“With this deal we hope to address the trade imbalance, remove the barriers to United States exports and ensure fairness and reciprocity in our relationship,” Trump said.
· The EU Parliament will be much more fragmented over the next five years with the established centrist bloc failing to gain a majority at this week’s election, early results and projections show.
The initial results on Sunday evening suggested a strong showing for Liberal and Green parties, with euroskeptic groups in France and the U.K. holding the gains they saw in 2014. Italy’s anti-immigration Lega party was also expected to make large gains, according to exit polls.
· Oil prices rose Friday ahead of long U.S. and UK holiday weekends, but posted their biggest weekly drop of the year, pressured by rising inventories and concern over an economic slowdown.
Brent crude rose 93 cents, or 1.4% to $67.69 a barrel but the global benchmark still posted a weekly loss of more than 4.5%. U.S. West Texas Intermediate crude rose 1.2% to $58.63, yet it recorded a one-week loss of more than 6%, its biggest of 2019.
Reference: CNBC
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