· The dollar eased on Thursday after Federal Reserve Chairman Jerome Powell set the stage for a rate cut later this month, vowing to “act as appropriate” to ensure the world’s biggest economy will be able to sustain a decade-long expansion.
“Chairman Powell sounded dovish on most dimensions. This is slightly surprising given benign trade developments following last month’s G20 meeting and the recent rebound in nonfarm payrolls,” said Michael Swell, co-head of global fixed income portfolio management at Goldman Sachs Asset Management.
“Overall, his comments around slowing growth against a backdrop of muted inflation and elevated uncertainties is consistent with ‘insurance rate cuts’ this year.”
· Adding to a generally dovish tone in his testimony, the minutes from the Fed’s previous policy meeting showed many policymakers thought more stimulus would be needed soon, reviving speculation of an aggressive rate cut.
The euro rose 0.2% in Asia to $1.1274, extending gains after a 0.4% rise the previous day.
The dollar dipped 0.5% to 107.96 yen, extending its slide from a six-week high of 108.99 set on Wednesday before Powell’s testimony.
The dollar’s index against six major currencies slipped 0.2% to 96.877, extending its losses into a second session after Powell’s first day of testimony, and turned negative on the week.
· “A rate cut in July is completely sealed now. But on the other hand, Powell dropped little hint on what he would do after that, as he sounded quite optimistic on the economy,” said Kyosuke Suzuki, director of forex at Societe Generale.
“That uncertainty, I think, will most likely keep the dollar in fairly tight ranges in coming weeks,” he said.
· USD/JPY is currently trading at 108.14, printing fresh lows in Asia as the dollar continues to slide. Powell’s testimony weighed on both US yields and the greenback.
The USD/JPY pair bounced just modestly from a daily low of 108.34, losing the positive momentum seen earlier this week, with further declines likely for this Thursday on renewed selling pressure below the mentioned low. In the 4 hours chart, the pair has found support around the 200 SMA but remains below the 20 SMA, while technical indicators have entered negative territory, the Momentum heading south and the RSI flat at around 47. The downward pressure could ease on a recovery above 108.70, which will depend on how government bond yields develop from now on.
Support levels: 108.35 108.00 107.65
Resistance levels: 108.70 109.00 109.40
· The former head of the European Central Bank (ECB) has joined a chorus of European finance chiefs in praising Christine Lagarde’s candidacy for the ECB’s top job.
Jean-Claude Trichet, a French economist who presided over the Frankfurt-based central bank from 2003 to 2011, has said that Lagarde’s experience as finance minister in France, coupled with her eight years as managing director of the International Monetary Fund, constituted “very, very good training.”
· The accusation by U.S. President Donald Trump’s administration that Chinese tech giant Huawei threatens national security is based on “innuendo and assumption” rather than facts, a leading economist said on Thursday.
Huawei said it would never hand over data to China’s government, but a recent paper appeared to reveal deeper links between the company and the Chinese military.
Still, Stephen Roach, a senior fellow at Yale University, said the Trump administration has not been convincing in its allegations that Huawei is a threat.
“This administration does not do fact-based policy, it does politics-based policy and that’s likely to continue to be the case with Huawei and even the possible imposition of further tariffs,” said Roach, who’s a former chairman of Morgan Stanley Asia.
But investors shouldn’t hold out for both sides to reach a deal before the 2020 presidential elections in the U.S., said Roach.
· U.S. tariffs on Chinese goods will continue indefinitely, a former American ambassador to China predicted on Thursday.
“I frankly believe that we’re in a new normal here — no rollbacks, no increase,” said Max Baucus, a former Democratic senator from Montana who was appointed ambassador by President Barack Obama.
“Maybe Huawei gets some relief, (maybe we get) more agriculture products purchased by China, U.S. products purchased by Chinese — that’s going to be about it,” Baucus told CNBC’s “Squawk Box.”
· A widely expected interest rate cut by the U.S. Federal Reserve would give China more breathing room in shoring up its slowing economy, some analysts said.
A looser monetary policy environment would reduce pressure on China’s central bank to ease monetary policy. Amid trade tensions with the U.S., China’s economy has struggled to gain momentum.
“If the Fed does go ahead and cut rates, which I don’t think is a given ... it simply means the PBoC has a little breathing room to see if the policies it has implemented have an impact on the real economy,” Hannah Anderson, global market strategist at J.P. Morgan Asset Management, told CNBC on Thursday by phone.
The central bank will also face less pressure to allow the yuan to depreciate, making it easier to maintain a goal of keeping the exchange rate stable, she said, while higher Treasury prices would boost the paper value of the PBoC’s holdings, increasing confidence.
· As trade talks resume between China and the United States, President Donald Trump’s advisers are confident he can portray his stance against Beijing as a strength in the 2020 election, despite making concessions and having no deal in sight.
· South Korea’s foreign minister told U.S. Secretary of State Mike Pompeo that Japan’s export curbs against Seoul are “undesirable”, the Foreign Ministry said on Thursday, as a trade row between the East Asian neighbors grows.
South Korea’s ruling party also announced on Thursday that up to about 300 billion won ($254.8 million) would be included in a supplementary budget bill to cope with Japan’s export curbs by speeding localization of materials supplies for chips and display panels.
· Tensions between Russia and its neighbor Georgia have been mounting in recent weeks amid a series of spats and sometimes violent anti-Russian protests in the capital Tbilisi.
Lawmakers in Russia’s parliament, the Duma, unanimously backed a resolution on Tuesday calling for sanctions to be imposed on Georgia.
Somewhat surprisingly, President Vladimir Putin rejected that call, saying that repairing strained relations with Russia’s smaller neighbor was more important than reacting to provocations by “scumbags.” He also said he was against imposing sanctions on Georgia, “out of respect for the Georgian people.”
What’s happened?
Russia has accused Georgia’s opposition of stirring up anti-Russian demonstrations in its capital Tbilisi, namely on June 20. The protests were sparked by public outrage at a Russian lawmaker’s address in the Georgian parliament from the speaker’s chair.
Thousands of Georgians took to the streets of the capital Tbilisi to protest and demonstrations ended with protestors trying to storm the parliament building. A reported 240 people were hurt in the clashes. Tensions have ratcheted up since then and protests have continued.
Anti-Russian sentiment is strong in Georgia given a 2008 military conflict with Russia that it fought and lost. Russia angered Georgia further by recognizing the breakaway (and pro-Russian) self-proclaimed republics of South Ossetia and Abkhazia.
· Oil futures hit a six-week high on Thursday as oil rigs in the Gulf of Mexico were evacuated ahead of a storm, while an incident with a British tanker in the Middle East highlighted ongoing tensions in the region.
Brent crude futures reversed early losses and were up 36 cents, or 0.5%, at $67.37 a barrel by 0643 GMT. Earlier in the session, they hit their highest since May 30 at $67.39, after ending Wednesday up 4.4%.
U.S. West Texas Intermediate (WTI) crude futures were up 32 cents, or 0.5%, at $60.75 a barrel, having earlier touched their highest since May 23 at $60.83. They gained 4.5% in the previous session.
Reference: Reuters, CNBC
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