· The dollar slipped on Thursday as risk aversion in the broader markets pushed benchmark U.S. yields to a nine-day low.
The dollar index versus a basket of six major currencies was down 0.2% at 97.081.
The index had climbed to a one-week peak of 97.444 the previous day on stronger-than-expected U.S. retail sales and a slump in sterling.
· “The dollar basically handed back earlier gains as Treasury yields pulled back and on IMF comments, and came back to where it was a few days ago,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.
Various economic data have given conflicting signs regarding the state of the U.S. economy, but that does not change the bigger picture of the dollar facing downward pressure due to an expected rate cut by the Federal Reserve later this month, Kanda said.
· The Fed is widely expected to lower interest rates by 25 basis points (bps) at its July 30-31 policy meeting, with some in the market wagering on a larger 50 bps cut.
· Sterling was a shade higher at $1.2438. It had stumbled to $1.2382, its lowest since April 2017 on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit, before selling abated.
· The euro added to modest overnight gains and edged up 0.1% to $1.1238. The single currency’s gains were limited as it was restrained by expectations of easing from the European Central Bank as early as next week.
· China has other “weapons” in its trade battle with the United States — and selling off its U.S. Treasury holdings will not be one of them, said Richard McGregor, senior fellow at think tank Lowy Institute.
“The Chinese current account deficit is now under 1% of GDP,” he explained. “If China were to do anything to the U.S. dollar, that would obviously hurt Chinese holdings of the U.S. dollar. And I also don’t think they want to see the disruptive affect that will have.”
McGregor said China has other options in the trade battle.
“China can manage its economy, manage its entry to its economy,” he said.
Beijing can manage foreign access to the Chinese economy, and decide whether to boost the presence of foreign firms or deny them further access
· As the U.S.-China trade fight drags on, investors are increasingly looking to move their money to areas that are more insulated from the dispute.
To avoid being hit by the tariffs that both economic powerhouses have placed on each other’s goods, importers from the two countries have been seeking those products from places not impacted by duties.
As a result, Andrew Gillan, head of Asia ex-Japan equities at Janus Henderson Investors, said he is looking at Southeast Asia, where some countries have been a beneficiary of the dispute as trade flows divert.
In particular, he recommended markets such as the Philippines and Indonesia, which he describes as “a little bit out of favor but still growing at very high rates.”
However, investors should stay away from North Asia, he said.
Gillan’s firm is currently looking to “rotate a little bit away” from North Asian markets such as China and even Taiwan and South Korea, with the latter two being an important part of the global technology supply chain — with companies such as chipmaker SK Hynix and major Apple supplier Hon Hai Precision Industry, better known as Foxconn.
The trade fight between Washington and Beijing has spilled over into the technology sector, with the U.S. accusing China of forced sharing of technology. Restrictions placed on the sale of U.S. tech to China have also spurred Beijing to develop more self-reliance, such as developing its own chips.
· Boris Johnson, favorite to be the next British prime minister, on Wednesday refused to say whether he would seek to shut Parliament to facilitate a no-deal Brexit but agreed such a plan could be convenient for him.
Sky News reported on Tuesday that Johnson is considering holding the Queen’s Speech, in which the prime minister lays out his policy program, in November. That means lawmakers would be sent home two weeks earlier, hindering their ability to stop Britain’s leaving the European Union without a deal on Oct. 31.
Johnson, likely to be announced as the winner of the Conservative Party leadership race next Tuesday and therefore the next prime minister, has said he wants to secure a withdrawal deal with the EU but is prepared to leave without one if necessary.
· The president of the Royal Society has warned the Tory leadership candidates that UK research could be damaged by a bad deal or no-deal Brexit.
Prof Sir Venki Ramakrishnan has presented them with an analysis showing that the UK collaborates with the EU much more than previously thought.
It shows that a third of UK research papers are co-authored with the EU scientists.
This compared with less than a fifth from the US.
Prof Ramakrishnan added that without a new visa arrangement it will be much more expensive for researchers from the EU to work in the UK compared with other countries.
He has also provided data which shows that it is substantially more expensive for researchers to get work visas in the UK than other nations. Currently, EU researchers working in UK labs have to pay nothing, but without a proper arrangement in place, those applying in future will have to pay thousands.
· Oil prices were mixed on Thursday with U.S. crude extending losses after falling in the previous session after data showed U.S. stockpiles of products like gasoline rose sharply last week, suggesting weak demand during the peak driving season.
Brent crude LCOc1 futures were up 6 cents, or 0.1%, at $63.72 a barrel by 0333 GMT. They fell 1.1% on Wednesday.
U.S West Texas Intermediate crude CLc1 futures were down 8 cents, or 0.1%, at $56.7. The U.S. benchmark dropped 1.5% in the previous session.
· Data on Wednesday from the U.S. Energy Information Administration showed a larger-than-expected drawdown in crude stockpiles last week, but traders focused on large builds in refined product inventories dragging prices down.
U.S. crude inventories USOILC=ECI fell 3.1 million barrels, the EIA said, more than analysts’ forecasts for a decrease of 2.7 million barrels.
However, gasoline stocks USOILG=ECI rose 3.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 925,000-barrel drop. Distillate stockpiles USOILD=ECI grew by 5.7 million barrels, much more than expectations for a 613,000-barrel increase, the EIA data showed.
Crude production was disrupted last week by Storm Barry, which came ashore on Saturday in central Louisiana as a Category 1 hurricane, the first major storm to hit the U.S. Gulf of Mexico this season.
More than half of daily crude production in the Gulf of Mexico remained offline by Tuesday, as most oil companies were re-staffing facilities to resume production.
· Oil prices have fallen this week as worries over a Middle East conflict have eased, oil production in the Gulf of Mexico has resumed after a storm and worries have emerged over Chinese economic growth.
The market shrugged of another incident involving a tanker in the Middle East amid tensions between the United States and Iran.
U.S. officials say they are unsure whether an oil tanker towed into Iranian waters was seized by Iran or rescued after facing mechanical faults as Tehran asserts, creating a mystery at a time of high tension in the Middle East.
Reference: Reuters, CNBC
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