· The dollar rose on Tuesday to near a five-week high against a basket of currencies after President Donald Trump and U.S. lawmakers reached a two-year deal lifting government borrowing limits to cover spending.
The U.S. Treasury now can ramp up short-term borrowing to rebuild a cash pile that has fallen to about $195 billion from $423 billion in late April, Morgan Stanley analysts said. An increase in U.S. borrowing would pare money in the banking system, which is seen as supportive for the greenback.
The dollar’s appeal got a boost after the International Monetary Fund raised its forecast on U.S. growth in 2019 while lowering its global growth outlook.
Support also came from a Bloomberg report that U.S. negotiators will head to China on Monday for face-to-face trade talks.
In late U.S. trading, an index that tracks the greenback versus the euro, yen, sterling and three other currencies was up 0.47% at 97.716. It touched 97.718, its highest level in about five weeks.
· The euro weakened broadly as investors geared up for news of fresh stimulus from the European Central Bank. Money markets have trimmed bets on a 10-basis-point deposit rate cut, but analysts expect dovish guidance and possibly more generous terms for planned multi-year loans.
The single currency fell to $1.1148, its lowest since May 31. It held at $1.1150, down 0.52% on the day.
· Britain’s pound slipped on news Boris Johnson, who promised to exit the European Union with or without deal by the end of October, will replace Theresa May as prime minister.
The pound was down 0.31% at $1.244, within striking distance of a 27-month low of $1.2382 reached last week.
· The deal that is in the final stages of negotiation would offset about $75bn of the higher spending levels in the agreement, giving the Trump administration and Republicans about half of the savings they sought, the people said.
The spending increase that Pelosi and Mnuchin have tentatively agreed to would raise current budget caps by $320bn over two years. The increase is $30bn less than Democrats sought.
With the new spending and limited savings, the deal will likely push the annual budget deficit over $1-trillion in 2020.
· American trade negotiators will soon head to China for face-to-face talks as the world’s two largest economies try to strike a deal, sources told CNBC.
The U.S. officials will travel to China for discussions sometime between Friday — the start of a six-week congressional recess in Washington — and Thursday, August 1.
While the talks represent a critical next step after a truce reached between the countries’ leaders in June, a deal is not viewed as near. President Donald Trump has signaled that he’d be willing to relax restrictions on China’s Huawei in exchange for purchases of U.S. agricultural products.
Longer-term, U.S. officials have suggested they could roll back the tariffs in exchange for Beijing making the deal legally binding — something it backtracked on in May.
· The European Union would retaliate with extra duties on 35 billion euros ($39.1 billion) worth of U.S. goods if Washington went ahead with tariffs on EU cars, the bloc’s trade chief said on Tuesday.
“We will not accept any managed trade, quotas or voluntary export restraints and, if there were to be tariffs, we would have a rebalancing list,” European Trade Commissioner Cecilia Malmstrom told a committee of the European Parliament.
“It is already basically prepared, worth 35 billion euros. I do hope we do not have to use that one,” she continued.
· The International Monetary Fund (IMF) has cut its growth forecasts for the global economy for this year and next.
It predicts growth of 3.2% in 2019, down from its April forecast of 3.3%. Growth next year is set to pick up to 3.5% next year, although that is below its earlier forecast of 3.6%.
Growth "remains subdued", the IMF says, and there is an urgent need to reduce trade and technology tensions.
The Fund has raised its growth forecast for the UK this year to 1.3% from 1.2%.
The revision for the UK reflects what the report calls a stronger-than-expected first three months of the year, boosted by pre-Brexit stockpiling.
Next year, the report predicts 1.4% growth. The UK forecasts are based on an assumption of an orderly Brexit followed by a gradual transition to the new regime. As the report notes, what this will be remains highly uncertain.
The IMF named a no-deal Brexit as one of the key risks to global economic growth.
"The principal risk factor to the global economy is that adverse developments - including further US-China tariffs, US auto tariffs, or a no-deal Brexit - sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline," the Fund said.
The IMF raised the U.S. GDP forecast by three-tenths of a percentage point to 2.6 percent for 2019, but weakening demand, in part due to the trade conflicts and tariffs, points to “slowing momentum over the rest of the year.”
The IMF predicts that the US economy will see a significant slowdown as the stimulus from tax cuts fades. After 2.9% growth last year, it predicts 1.9% in 2020.
China, which is the main target of U.S. trade actions, was already experiencing a slowdown. But “the negative effects of escalating tariffs and weakening external demand have added pressure,” the report said. A sudden slowdown in China is a key risk to the world economy.
The report downgraded Chinese growth by a tenth of a point this year and next, to 6.2 percent and 6.0 percent.
· The Japan-South Korea conflict could push up the price of your next smartphone.
Japan has restricted exports to South Korea of three chemicals that are being used for making semiconductors and display screens.
Tokyo’s global dominance of those materials will make it difficult for Seoul to find alternatives when their supplies are disrupted by the curbs.
As a result, South Korean tech manufacturers Samsung Electronics and SK Hynix could fail to meet production deadlines.
That’s bad news for their customers, which include large tech companies such as Apple and Huawei.
· Oil prices were up on Tuesday as expectations of lower U.S. crude supplies were offset by weaker demand forecasts and the full restart of Libya’s largest oil field.
Libya’s Sharara oil field returned to normal production on Tuesday, pressuring prices that rallied a day earlier on fears the tanker capture could disrupt supplies in the heavily trafficked Strait of Hormuz.
Brent crude rose 67 cents to $63.94 a barrel on Tuesday. West Texas Intermediate climbed 1% or 64 cents to $56.77.
Oil may gain further support if forecasts are correct for another drop in U.S. crude inventories. Analysts expect a 3.4 million-barrel draw in the latest week.
Reference: CNBC, Reuters, BBC, Business Day, Japan Times
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