· The dollar rose on Wednesday, even as investors focused on socking their money into bonds and gold - and to a lesser extent the yen and Swiss franc - with no end in sight in the trade tension between China and the United States.
Fears about a trade war between the world’s two biggest economies spurred selling in emerging market currencies such as the South African rand and Brazilian real and commodity-sensitive currencies including the Australian and New Zealand dollars.
In late U.S. trading, an index that tracks the greenback against the euro, yen, sterling and three other currencies was 0.23% higher at 98.173, holding below a two-year high of 97.908 reached last week.
The Chinese yuan softened to 6.9130 per dollar, not far from 5-1/2 month lows.
· Long-term government debt yields fell further below rates on short-term notes and bills during Wednesday’s session, an unusual bond market phenomenon often heralded on Wall Street as a recession prognosticator.
The yield curve inversion between the 3-month Treasury bill and the 10-year note widened to its deepest level since the financial crisis, with investors now expecting a 10 basis point premium for holding 3-month bills over 10-year notes. The 3-month bill yield rose to 2.362% while the 10-year note yield dropped to 2.26%, off its lowest since September 2017 notched earlier in the session.
The yield curve is sending a warning about economic growth in the United States and the world, many investors and economists believe.
A growing number now expect the Fed to cut its overnight lending rate later in 2019 as the boost from President Donald Trump’s tax cuts give way to mounting trade disputes.
“Now we see a situation where the European economy has slowed substantially and so has the Chinese economy, although the European economy more,” he said in March. “Just as strong global growth was a tail wind, weaker global growth can be a headwind to our economy.”
· The biggest Chinese newspaper explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals as a countermeasure in the escalated trade battle, using an expression the publication has only used twice in history, both of which involved full-on wars.
“We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!” the People’s Daily said in a commentary titled “United States, don’t underestimate China’s ability to strike back.” The publication is the official newspaper of the Communist Party of China.
The phrase “Don’t say we didn’t warn you” was only used two other times in history by the People’s Daily — in 1962 before China’s border war with India and ahead of the 1979 China-Vietnam War.
· The Pentagon presented a report to Congress on rare earth minerals in an effort to reduce reliance on China, according to a Reuters report.
“The department continues to work closely with the president, Congress and the industrial base to mitigate U.S. reliance on China for rare earth minerals,” Lt. Col. Mike Andrews, a spokesman for the U.S. Defense Department, told Reuters Wednesday.
· Acting Secretary of Defense Patrick Shanahan on Wednesday downplayed concerns that the U.S.-China trade war would further complicate defense discussions between Washington and Beijing.
“Trade runs a separate track, and we’ll solve that. It is too important not to solve,” Shanahan told reporters traveling with him. “I don’t believe [it will] spill over into our dialogue and discussion on defense.”
· British car production collapsed last month by the largest amount since the global financial crisis as factories shut down for a Brexit that never came, industry figures showed on Thursday.
The Society of Motor Manufacturers and Traders (SMMT) said car production fell 44.5% year-on-year to 70,971 units in April, the sharpest fall since exactly 10 years ago, when Britain was mired in recession.
· Britain should slow the rate at which it increases its minimum wage to avoid the risk of low-paid workers being priced out of a job during the next recession, an anti-poverty think tank said on Thursday.
· North Korea on Wednesday accused the United States of showing bad faith in negotiations by conducting nuclear and missile tests and military drills as part of an “evil ambition” to conquer North Korea by force, even while advocating dialogue.
· Oil prices fell in volatile trade on Wednesday, weighed down by equity markets as China signaled readiness to escalate the trade war with the United States, stoking concerns that an ongoing stand-off could hurt demand.
Supply constraints linked to the Organization of the Petroleum Exporting Countries’ output cuts and political tensions in the Middle East offered some support, however.
Brent crude futures, the international benchmark for oil prices, were at $69.46 a barrel, down 66 cents, or 0.9%, having hit a session low of $68.08.
U.S. West Texas Intermediate (WTI) crude futures fell 0.6% to settle at $58.81 per barrel, after hitting a low of $56.88, their lowest level since March 12.
Both contracts were set for their first monthly decline in five.
Reference: CNBC, Reuters
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