While U.S. money markets are pricing in roughly two rate hikes by January 2020 and the bond yield curve inverted further overnight, signaling rising recessionary risks for the world’s biggest economy, demand for dollars show no signs of abating.
“The strength in the dollar is surprising given that markets are now expecting multiple rate cuts by 2020,” Commerzbank FX strategist Ulrich Leuchtmann said.
Against a basket of its rivals, the dollar was generally firm at 98.22, with gains more pronounced against rivals such as the euro and the pound. It was on track to rise for a fourth consecutive month.
· Risk appetite was broadly cautious despite some early gains in European stocks, with bond yields firmly entrenched in recession warning territory.
· The spread between three month U.S. Treasury bills and 10-year bond yields has inverted to its lowest level since August 2017. An inverted yield curve is traditionally seen as a harbinger of recession by financial markets.
Elsewhere in the foreign exchange market, the dollar was steady at 109.59 yen, about 0.5% above a more than three-month low of 109.02 yen touched on May 13.
· Analysts said the yen, another safe-haven asset backed by Japan’s status as the world’s biggest creditor nation, remained relatively weak due to domestic investors’ demand for dollars.
· U.S. government debt prices were lower Thursday morning, as investors are closely monitoring developments in the bond market.
At around 01:43 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.2675%, while the yield on the 30-year Treasury bond was also higher at around2.6903%.
Meanwhile, on the data front, there will be initial jobless claims, revised GDP numbers, international trade in goods and pending home sales numbers due throughout the day.
· As many countries grapple with how seriously to take U.S. warnings that Huawei’s technology can’t be trusted, Malaysia’s leader says the answer is unambiguous for his country.
Despite the back and forth about potential risks, Malaysian Prime Minister Mahathir Mohamad shrugged off such worries during an appearance Thursday in Tokyo when asked if his country has any plans to follow Washington’s lead.
“We are too small to have any effect on a huge company like Huawei, whose research is far bigger than the whole of Malaysia’s research capability,” Mahathir said during a question and answer session at a conference sponsored by Japan’s Nikkei media group.
“So we try to make use of their technology as much as possible,” he said, dismissing concerns it poses a security threat to his country, at least.
· Provoking trade disputes is “naked economic terrorism”, a senior Chinese diplomat said on Thursday, ramping up the rhetoric against the United States amid a bitter trade war that is showing no signs of ending soon.
Speaking to reporters in Beijing, Chinese Vice Foreign Minister Zhang Hanhui said China opposed the use of “big sticks” like trade sanctions, tariffs and protectionism.
“We oppose a trade war but are not afraid of a trade war. This kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying,” Zhang said, when asked about the trade war with the United States.
Everyone loses in a trade war, he added, addressing a briefing on Chinese President Xi Jinping’s state visit to Russia next week, where he will meet Russian President Vladimir Putin and speak at a major investor forum in St Petersburg.
· China is willing to meet reasonable demand for rare earths from other countries, but it would be unacceptable that countries using Chinese rare earths to manufacture products would turn around and suppress China, its commerce ministry said.
That would be unacceptable, Gao Feng, spokesman at the Chinese commerce ministry, said at a weekly media briefing on Thursday, without identifying any country.
· Growth is likely to be slower than the Bank of England’s Monetary Policy Committee forecast earlier this month as productivity lags and investment risks being weaker than forecast, Deputy Governor Dave Ramsden said on Thursday.
· Bank of Japan policymaker Makoto Sakurai on Thursday warned against “recklessly” ramping up stimulus just to prop up prices, blaming soft inflation on structural factors that were positive for the economy.
Bank of Japan board member Makoto Sakurai said on Thursday the central bank would consider steps to mitigate the demerits of its ultra-easy policy if doing so became necessary in future.
· Oil prices rose on Thursday after an industry report showed a bigger-than-expected decline in U.S. crude inventories, although concerns that the U.S.-China trade war will trigger an economic downturn kept a lid on gains.
Brent crude futures, the international benchmark for oil prices, were at $69.85 per barrel at 0700 GMT, up 40 cents, or 0.6%, from their last close. Brent fell nearly 1% in the previous session.
U.S. West Texas Intermediate (WTI) crude futures were up 48 cents, or 0.8%, at $59.29 a barrel.
· U.S. crude inventories fell by 5.3 million barrels in the week to May 24 to 474.4 million barrels, data from industry group the American Petroleum Institute showed on Wednesday.[API/S]
Official data from the Energy Information Administration (EIA) is due on Thursday at 1500 GMT. [EIA/S]
Outside the United States, oil prices remain supported by output cuts from the Organization of the Petroleum Exporting Countries (OPEC) and other major producers as well as falling supplies from Iran.
Reference: CNBC, Reuters, Economics Times
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