· The dollar weakened against its rivals on Tuesday, heading back towards a recent three-month low before a U.S. central bank meeting gets underway with expectations growing the Fed will signal its first rate cut in a decade.
Against a basket of its rivals, the dollar edged 0.1% lower at 97.437 and not far away from a three-month low of 96.46 hit earlier this month.
A CME Fedwatch tool puts the probability of a quarter-point interest rate cut by the Fed at 20%, with a 70% probability of a rate cut at its next meeting in July.
· But with so much dovishness already priced into the markets and the dollar having weakened 1% over the past three weeks, some market analysts say the greenback may strengthen if the Fed signals a more neutral stance.
“The majority view among the Fed comments does not suggest any particular appetite for an immediate rate cut, say in June or July,” HSBC strategists said in a note. “The balance of risks favors being long the dollar, not least because positioning is likely a little lighter after the recent sell-off.”
· European Central Bank President Mario Draghi has said that cutting interest rates is part of the bank's toolkit, completing a dovish reversal by the Frankfurt-based institution.
He adds that additional stimulus may be needed if the situation does not improve. Mitigating measures are part of the tools in order to fight any side effects. Draghi said that APP (which is the ECB's bond-buying scheme) still has considerable headroom.
EUR/USD has dropped from around 1.1230 to nearly 1.1200.
· Huawei’s American chip suppliers, including Qualcomm and Intel, are quietly pressing the U.S. government to ease its ban on sales to the Chinese tech giant, even as Huawei itself avoids typical government lobbying, people familiar with the situation said.
The ban bars U.S. suppliers from selling to Huawei, the world’s largest telecommunications equipment company, without special approval, because of what the government said were national security issues.
Chip makers argue that Huawei units selling products such as smartphones and computer servers use commonly available parts and are unlikely to present the same security concerns as the Chinese technology firm’s 5G networking gear, according to three people.
· Chinese President Xi Jinping will travel to North Korea this week for a two-day visit, ahead of a possible meeting between Xi and President Donald Trump at next week’s G-20 summit in Japan.
Xi will meet with North Korean leader Kim Jong Un, who has resisted calls to give up his nuclear weapons.
The Chinese leader could offer a plan for Pyongyang and Washington to resume formal talks and also be looking to gain leverage with Trump as the U.S.-China trade war continues to simmer.
· There are signs that ongoing trade tensions are putting some pressure on China’s job market — despite Beijing’s efforts to emphasize the negative impact of tariffs on the U.S.
According to China’s top economic planning body, some local companies are cutting back on their efforts to hire new university graduates.
“Due to (the) impact from the continued increase of China-U.S. economic trade frictions and other uncertainties, recruitment demand for university graduates is tightening in internet, finance and other industries,” according to a statement to CNBC from a spokesperson for the National Development and Reform Commission (NDRC).
China’s official unemployment rate remains low — at 5% in April and May.
However, for last year’s college graduates, the percentage that didn’t find work was higher, given an employment rate of 91.5%, Xinhua said in a Sunday report, citing third-party research firm MyCOS. A record 8.34 million people are expected to graduate from China’s universities this year — up from 8.2 million last year, according to state news agency Xinhua.
· Japan, South Korea and Taiwan are “highly exposed” to the Chinese economy, said Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics.
In addition to serving consumers in China, the Asian economies also supply products that Chinese factories assemble and sell to other markets such as the U.S., according to Cochrane.
“They depend very highly on trade linkages with China, and (are) very tightly tied in to both domestic demand in China and in terms of the broader supply chains. So they’re very, very highly exposed,” Cochrane told CNBC’s “Squawk Box” on Tuesday.
· Bank of Japan Governor Haruhiko Kuroda said the central bank will “certainly” debate heightening overseas risks at a rate review this week, underscoring concerns among policymakers about the economic fallout of a U.S.-China trade war.
At the two-day meeting kicking off on Wednesday, the BOJ is expected to keep monetary policy steady but signal its readiness to ramp up stimulus if growing overseas risks threaten the economy’s modest expansion.
“The BOJ will guide monetary policy appropriately taking into account the impact overseas economic changes could have on Japan’s economic outlook and the momentum for achieving our inflation target,” Kuroda said.
· Oil prices fell for a second day on Tuesday on signs that global economic growth is being hit by the U.S.-China trade war, although losses were limited by tensions in the Middle East after last week’s tanker attacks.
Brent crude futures were trading down 40 cents, or 0.7%, at $60.54 a barrel by 0701 GMT. They fell 1.7% in the previous session on concerns about slowing global growth.
U.S. West Texas Intermediate (WTI) crude futures were down 28 cents, or 0.5%, at $51.65. They dropped 1.1% on Monday.
Market participants are also awaiting a meeting between the Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, to decide whether to extend a production cut agreement that ends this month.
Reference: Reuters, CNBC
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