· Fears of a further escalation in the Sino-U.S. trade dispute kept the dollar steady on Wednesday, holding gains made overnight after investors scooped up safe-haven assets, including U.S. Treasuries.
The People’s Daily newspaper, owned by China’s ruling Communist Party, warned that Beijing was ready to use rare earths for leverage in its trade war with the United States, saying in an extremely strongly worded commentary “don’t say we didn’t warn you.”
· Losses in the euro in the previous session also helped support the dollar, as analysts warned of more risks for the single currency on uncertainty surrounding the euro zone economy and the bloc’s political future.
· Against a basket of six peers, the dollar index was steady at 97.929, having ended up 0.3% overnight. The index was trading 0.45% off a two-year high of 98.371 hit on Thursday and was still up 1.8% for the year.
The dollar held up even after benchmark 10-year U.S. Treasury yields hit as low as 2.240%, their lowest since September 2017. The greenback’s own status as a safe-haven helped amid worries about the trade tensions and Italy’s budget policy. The U.S. 10-year yields were last at 2.245%.
· The euro edged up 0.04% to $1.1165, having shed nearly 0.3% during the previous session. The common currency remained not far off a near two-year low of $1.11055 brushed on Thursday.
European Union leaders are set to begin the process of filling a number of top EU posts, from the head of the European Commission to the European Central Bank.
· “The reason we’ve seen the euro drop off is because the European zone in particular has been threatened by and troubled by the trade concerns,” said Rakuten’s Twidale.
“On the back of that, we also had those European elections so there’s a lot of political instability in Europe,” he added. “That’s putting pressure on the currency.”
· Italian Deputy Prime Minister Matteo Salvini, whose far-right League triumphed in European elections on Sunday, said the European Commission could fine Italy 3 billion euros for breaking EU debt and deficit rules, a comment that weighed on the single currency.
· MUFG – Japan’s largest bank – expects the USD/CHH pair to rise above 7.0 0 in the fourth quarter of this year.
The enforcement mechanism undid the US-China trade deal and adding Huawei into the mix will only complicate matters.
Trade stalemate is stretching out Yuan depreciation.
China's collective leadership is not willing to do business on Trump's terms; they have partially unleashed nationalism.
· Huawei files new legal action as it tries for a swift end to its lawsuit against the US government
The lawsuit focuses on a provision in a law known as the National Defense Authorization Act (NDAA). Section 889 of that legislation prohibits executive government agencies from procuring telecommunications equipment from Huawei and rival ZTE. Both are explicitly named in the act.
The Eastern District of Texas court has scheduled a hearing for Sept. 19. It could take several months to get a decision on Huawei’s motion.
Huawei’s aim is to speed up the process. If the court rules in favor of the Chinese tech giant, there will be no need for a full-blown trial. Lawyers for the U.S. government could, however, ask the court to reject the motion.
· China is ready to use rare earths to strike back in a trade war with the United States, Chinese newspapers warned on Wednesday in strongly worded commentaries on a move that would escalate tensions between the world’s two largest economies.
· Rare earth imports are a relatively small part of the $420 billion U.S. goods deficit with China, but their worth far outstrips their dollar value. The materials are critical in the creation of such things as iPhones, electric vehicles and advanced precision weapons.
“This is still not official. The U.S. only imported about 4,000 tons of rare earths, worth about $175 million. The problem is most of the rare earths we import are embedded already in the technology. If we buy a computer, they are already in it. That makes it harder for China to cut us off,” said Marc Chandler, global market strategist at Bannockburn Global Forex.
Chandler said the official’s comment was not an official threat from the Chinese government. “The reason the market latches on to this is they think China will retaliate, they just don’t know how,” said Chandler. “Once they think it through they will realize this will not be today or tomorrow. In order for China to do it comes at a big cost to them. It makes it too severe.”
Bank of America Merrill Lynch strategists, in a note, point out that the U.S. Department of Defense has termed China’s domination of the rare earth market as potentially dangerous, given the offshoring of manufacturing and vulnerabilities in America’s manufacturing and defense industrial base.
China produced about 78% of rare earths in 2018, and owns about 40% of global resources. Bank of America strategists noted the dominance of China is due to the fact that its government classified them as a strategic resource and has emphasized exploration and extraction of the raw materials for about 100 years.
· Oil prices fell by around 1% on Wednesday on concerns the Sino-U.S. trade war could trigger a global economic downturn, but relatively tight supply amid OPEC output cuts and political tensions in the Middle East offered some support.
Front-month Brent crude futures, the international benchmark for oil prices, were at $69.53 a barrel at 0641 GMT, down 58 cents, or 0.8%, from last session’s close.
U.S. West Texas Intermediate (WTI) crude futures were at $58.46 per barrel, down 70 cents, or 1.2%, from their last settlement.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices remain pinned to support in the 57.24-88 area. A daily close below it opens the door for a test of the 55.37-75 zone. Alternatively, a push above support-turned-resistance in the 60.39-95 region sets the stage for a challenge of the 63.59-64.43 price band.
Reference: CNBC, Reuters, FX Street
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