With trade issues remaining front-and-center, investor appetite for risk has been dampened by fears of a global growth slowdown that has helped stoke demand for government debt and triggered an equity sell-off.
The Swiss franc rallied 0.3% against the dollar to 0.9975 and the yen gained 0.15% to 108.10 yen, its highest since mid-January.
· Fed funds futures were pricing a 64% chance of either a half percent rate cut or two quarter-point cuts by the end of the year.
J.P. Morgan Chase economists also promptly called for two Fed interest rate cuts by December, changing their view from an equal chance for either an interest rate hike or cut. Barclays economists also said they expect two rate cuts, one a half percent cut and a second quarter point cut, based on a slowing economy, extended trade war with China and the Mexican tariffs.
“If the Administration follows through on the proposed actions, we believe the adverse growth implications would prompt Fed easing. Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response,” the J.P. Morgan economists said in a note Friday morning. “Accordingly, we now look for two 25bp reductions in the federal funds rate target, in September and December.”
· While trade tensions and sluggish data were already taking a toll on the US Dollar (USD), growing doubts on the US economic strength recently favored the greenback bears.
Break of 1.2710 and 21-day simple moving average (SMA) near 1.2775 seem necessary for the pair to aim for 1.2810 and April month low near 1.2865.
Should prices take a U-turn, 1.2560, 1.2500 and 1.2480 are likely nearby rests that can be availed during the downpour to the year’s low surrounding 1.2430.
· Forex today witnessed a cautious start to a big week ahead, with softer risk tones persisting amid global growth concerns sparked by escalating trade wars. The manufacturing sector activity deteriorated in Japan and South Korea while held steady in China. Therefore, traders opted to hold the safe-havens such as the Yen, gold and the Swiss Franc at the expense of the risky bets, the Asian equities, Treasury yields and oil prices. Despite risk-aversion, the US dollar slipped further into the red zone across its main competitors amid dovish comments from Fed’s Daly and increased bets of a Fed rate cut by end-2019.
Amongst the G10 currencies, the USD/JPY pair fell to fresh 4.5-month lows and tested the 108 handle while the Antipodeans traded firmer amid broad USD weakness. The Aussie rose to three-week tops near 0.6960 amid Chinese data relief and the US President Trump deciding against the tariffs on Australia. The Kiwi inched 0.25% higher and regained 0.6550 barrier briefly. Meanwhile, the USD/CAD pair reported modest losses below 1.3500 despite a 1% drop in oil prices.
On the other hand, both the EUR/USD pair and the Cable advanced amid falling Treasury yields and ahead of the US President Trump’s UK visit. Gold prices on Comex reached ten-week highs above 1315 on widespread risk-aversion and dovish US interest rates outlook.
· As the U.S.-China tariff battle increasingly heats up, analysts from J.P. Morgan and Morgan Stanley say it’s looking likely that there will not be any trade deal coming out of the G-20 summit in Japan this month.
The summit has been cast as a possible opportunity for the opposing sides to ink a deal, with market watchers expecting that both Presidents Donald Trump and Xi Jinping would be in attendance.
But on Monday, experts from both J.P. Morgan and Morgan Stanley told CNBC that the rhetoric from both sides in recent weeks has worsened to a point where it’s appearing improbable that there would be a deal — at least in the short term.
· The ongoing trade war between the United States and China is negatively affecting air cargo demand for Asian airlines, according to the director general of the Association of Asia Pacific Airlines, a regional trade body.
Asian airlines are major players in the air cargo industry and carry almost 40% of global volume, Andrew Herdman told CNBC’s Chery Kang at the International Air Transport Association’s annual general meeting in Seoul, South Korea.
Last week, IATA released data for global air freight markets that showed worldwide demand fell 4.7% on-year in April, continuing the negative trend in demand that started in January. Demand for Asia Pacific airlines fell by 7.4% over the same period — the sixth consecutive month of decline for the region.
Trade uncertainties — triggered by Brexit, as well as tariff tensions between the U.S. and China — contributed to declining new export orders and the weakness is likely to persist in the coming months, according to IATA, the global trade association for airlines.
IATA also slashed its 2019 profit outlook for airlines. It expects profits to come in at $28 billion for the year, a decline from the $30 billion reported in 2018. IATA had previously predicted 2019 profits to come in at$35.5 billion.
The outcome for the second half of the year remains unpredictable, according to Herdman. For Asia Pacific airlines that means having to think about their sourcing decisions and determining if they want to shift the direction of their supply chains and diversify their sources, he said. “It’s very difficult for them because the political twists and turns can make strategic decisions invalid.”
Airlines are also facing other challenges, Herdman added, which include higher fuel prices that are squeezing their margins since most of that cost has not been passed on to passengers.
· There is “no chance” President Donald Trump will back down in the U.S. trade war with China, former Trump advisor Steve Bannon told CNBC on Wednesday.
“China has been running an economic war against the industrial democracies for now 20 years,” said the hardline ex-White House chief strategist, who helped craft Trump’s nationalist message.
Bannon said previous presidents — Bill Clinton, George W. Bush and Barack Obama — passed the buck on addressing and fixing the problems of China’s protectionist economy. But Trump is not shying away from the fight, he added.
· President Donald Trump’s first official state visit to the U.K. will be dominated by a series of official engagements with the British royal family and Prime Minister Theresa May.
Here’s a look at what Trump is scheduled to get up to over the next three days:
Day one
The Trump family will begin their state visit with a ceremonial welcome in the Buckingham Palace garden. There, they will meet with Queen Elizabeth II, the Prince of Wales and the Duchess of Cornwall as they inspect the Guard of Honour.
Royal gun salutes will be fired in Green Park and at the Tower of London on the River Thames shortly afterward.
The U.S. president and his wife will attend a private lunch at the Palace with the queen, before being invited to take a tour of a special exhibition in the picture gallery.
Later that afternoon, they will head to Westminster Abbey with Prince Andrew to lay a wreath at the grave of the Unknown Warrior.
For afternoon tea, Trump and the first lady will head to Clarence House with Prince Charles and Camilla.
The first day will conclude with a state banquet at Buckingham Palace, where both the queen and Trump will be expected to make speeches.
Day two
The U.S. president will begin his second day in Britain by joining May for breakfast at St James’s Palace in London. The Duke of York as well as other prominent U.S. and U.K. business leaders will be expected to attend.
On Tuesday evening, Prince Charles and Camilla will join the U.S. president and first lady at Winfield House in Regent’s Park, the official residence of the U.S. ambassador to the U.K.
Day three
Trump’s final day in the U.K. will be spent commemorating the 75th anniversary of the D-Day landings.
The president will accompany members of the British royal family at an official event in Portsmouth, before travelling to Normandy to attend another D-Day ceremony in France with President Emmanuel Macron.
· Britain takes careful notice of what the United States says on the risks of using Huawei in 5G networks and does not want to be overly dependent on a third country for certain technologies, Foreign Secretary Jeremy Hunt said on Monday.
“We take careful notice of everything the U.S. says on these issues,” Hunt told BBC radio. “We will certainly listen carefully to what they say.”
“We haven’t made our final decision but we have also made it clear that we are considering both the technical issues - how you make sure there isn’t a backdoor so that a third country could use 5G to spy on us - but also the strategic issues so that you make sure that you are not technologically over-dependent on a third country for absolutely vital technology,” Hunt said.
· Italian Prime Minister Giuseppe Conte will threaten to resign on Monday unless the fractious ruling parties settle their differences and get on with governing, several Italian newspapers reported.
Conte will make clear in a speech in the afternoon that he wants the coalition to accept European Union budget rules and
has no intention of being subjected to a European Union disciplinary procedure over public debt, la Repubblica reported.
Should they continue to squabble, President Sergio Mattarella will dissolve parliament in July ahead of new elections in September, so as to give the new government enough time to draw up the 2020 budget the following month, Il Fatto and Corriere della Sera said.
· A private survey of China’s factory sector showed on Monday that manufacturing activity was slightly better than expected in May.
The Caixin/Markit factory Purchasing Managers’ Index for May was 50.2. Analysts polled by Reuters had expected the indicator to come in at 50. The PMI reading for April was 50.2.
PMI readings above 50 indicate expansion, while those below that signal contraction.
Last week, China’s official manufacturing PMI for May came in at 49.4, lower than the 49.9 economists polled by Reuters had forecast. It was lower than April’s reading of 50.1. The official non-manufacturing PMI for May was 54.3 — unchanged from April.
Growth of new orders grew in May, and the rate of new business growth quickened slightly in the last month, Caixin said in a statement on Monday.
“The stronger rise in overall new business supported a renewed expansion in buying activity among Chinese manufacturing firms. Though only slight, it was the first time that purchasing activity had increased for five months,” the statement added.
· Oil prices fell by around 1% on Monday, extending losses of over 3% from Friday, when crude markets slipped to their biggest monthly losses in six months amid stalling demand and as trade wars fanned fears of a global economic slowdown.
Front-month Brent crude futures were at $61.28 at 0659 GMT. That was 71 cents, or 1.1%, below Friday’s close.
U.S. West Texas Intermediate (WTI) crude futures were at $53.09 per barrel, down 41 cents, or 0.8%, from their last settlement.
The drops followed price slumps of more than 3% on Friday, which made May the worst-performing month for crude futures since last November.
“Oil prices slid on fresh trade worries after U.S. President Donald Trump stoked global trade tensions by threatening tariffs on Mexico, which is one of the largest U.S. trade partners and a major supplier of crude oil,” Mithun Fernando, investment analyst at Australia’s Rivkin Securities, said in a note on Monday.
· “The U.S.-China feud remains most critical to the global growth outlook, but the addition of trade tensions between the U.S. and Mexico raised the slower demand picture for the Americas,” said Edward Moya, senior market analyst at OANDA, another futures brokerage.
Reference: Reuters, CNBC, FX Street
Thai
Eng