· The U.S. dollar gained on Wednesday as trade tensions and U.S. interest rate policy remained in focus after President Donald Trump expressed optimism over making a trade deal with China.
The greenback has come under pressure recently as the U.S.-China trade war threatens to derail global economic growth, adding to bets that the Federal Reserve is closer to cutting interest rates.
The euro dropped as Trump said he was considering sanctions over Russia’s Nord Stream 2 natural gas pipeline project and warned Germany against being dependent on Russia for energy.
The dollar held its gains early on Thursday after rebounding from 11-week lows, as peers such as the euro, pound and commodity currencies sagged due to troubles of their own.
The dollar index versus a basket of six major currencies was steady at 96.957 after rising more than 0.3% overnight.
The index had dropped to 96.459 on Monday, its lowest since late March, following a sharp decline in long-term U.S. Treasury yields, which fell to near two-year lows last week after a soft U.S. jobs report bolstered expectations for an interest rate cut by the Federal Reserve.
The euro was a shade higher at $1.1293 after retreating 0.35% overnight, while the pound stood little changed at $1.2692 following a loss of 0.3% on Wednesday.
· U.S. consumer prices rose just 0.1% last month, matching a Reuters estimate, the Labor Department said Wednesday. Core inflation, which strips out volatile components like food and energy prices, also rose 0.1%. The muted inflation numbers follow weaker-than-forecast employment and manufacturing data released last week.
· U.S. government debt yields fell on Wednesday after a government report showed that prices consumers pay across the U.S. economy inched higher in May.
At around 5:02 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.12%, while the yield on the 30-year Treasury bond was little changed at 2.618%.
· The Fed is not widely expected to cut rates when it meets on June 18-19, though investors will be watching for any new signals that a cut is getting nearer.
Interest rate futures traders are now pricing in a 21% chance of a cut in June and an 85% likelihood of at least one cut in July. Investors are also nervous that trade battles will spread to Japan and Europe, with Trump on Tuesday accusing Europe of devaluing the euro zone’s single currency.
· Two of the world’s most influential economic leaders have warned that there are troubling developments arising from increased trade barriers and tariffs.
Mario Draghi, the president of the European Central Bank (ECB) and Christine Lagarde, the managing director of the International Monetary Fund (IMF) warned that the global trade dispute between the U.S. and China as well as a threatened dispute with Europe and other industrial nations could cause headwinds for all and could get worse.
· The trade war and global slowdown are combining to trigger a sharp drawdown in profits for U.S. multinational companies.
Companies that derive more than half their sales outside the U.S. are expected to see a 9.3% slump in second-quarter earnings as the reporting season looms about a month away, according to FactSet estimates that see the S&P 500 broadly reporting a 2.3% decline.
· Oil prices sank 4% on Wednesday, with losses accelerating into the settlement after government data earlier showed a large increase in U.S. crude stockpiles for the second week in a row.
The latest sign of rising supply comes as the market continues to grapple with concerns about weakening fuel demand amid the ongoing U.S.-China trade war.
U.S. West Texas Intermediate crude futures plunged $2.13 to $51.15 per barrel, tumbling 4% on the day to a new five-month low. Brent crude, the international benchmark for oil prices, fell $2.32 or 3.7%, at $59.97 a barrel, its first settle below $60 since January.
U.S. commercial crude inventories rose by 2.2 million barrels in the week through June 7, according to the U.S. Energy Information Administration. Analysts in a Reuters poll had expected stockpiles to fall by 481,000 barrels.
Crude futures fell to their lowest since January last week after EIA figures showed crude stocks surged to the highest level since July 2017.
· President Donald Trump on Wednesday said he is still considering using sanctions to block a controversial pipeline that would increase natural gas flows from Russia to Germany.
Trump has claimed since last year that Germany is captive to Russian energy exports. Like past U.S. presidents, he opposes the Nord Stream 2 pipeline, which would run beneath the Baltic Sea alongside an existing line linking eastern Russia and northern Germany.
The U.S. and many European nations fear the pipeline would help Russia bypass infrastructure in Ukraine, allowing Moscow to use energy supplies as a weapon against its neighbors without disrupting flows to Western Europe.
· Hong Kong braced for the possibility of more anti-government protests on Thursday after scenes of violence and chaos shook the normally peaceful global trade and finance center a day earlier.
Government offices in the financial district were closed for the rest of the week due to the protests.
Violence broke out outside the local legislature, that was surrounded by demonstrators for much of the day. Police wielding batons and riot shields fired tear gas and rubber bullets at the crowds, and protesters used open umbrellas as defense, with some throwing objects at police.
Reference: CNBC, Reuters
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