· The Japanese yen surged to a five-week high versus the dollar and a 2-1/2-year peak against the pound on Friday, after U.S. President Donald Trump broke a truce in the Sino-U.S. trade war, bolstering demand for safe-havens.
China’s onshore yuan slumped to its lowest since November 2018 as Trump’s new levies would end a recent pause in a trade war that has forced Chinese policymakers to unleash stimulus to offset its slowing economy.
The British pound edged toward a 30-month low versus the dollar due to persistent worries about a no-deal Brexit and a cut in the Bank of England’s economic forecasts.
· Against the dollar, the yen jumped to 106.84, its strongest since June 25, before paring gains to trade at 107.06.
For the week the dollar was on course for a 1.5% decline versus the yen, its largest weekly decline since January.
The dollar index was steady in Asia at 98.417 after falling 0.15% on Thursday, its biggest daily decline in two weeks.
· The USDINR could reverse the dominant downtrend from October 2018 if trade tensions between the United States and India escalate in an already anxious market environment. On June 1, US President Donald Trumpended preferential treatment status for about $6b worth of goods purchased duty-free from India. This was partially as a result of aiming to reduce the nation’s trade deficit with the world.
· President Trump will make an announcement regarding trade matters with the European Union at 13:45 EST today, as per the White House schedule.
On Thursday, President Trump ratcheted up trade tensions by stating that the US will impose a new 10% tariff on $300 billion worth of products imported from China.
Analysts’ view on latest tariffs threat
· U.S. President Donald Trump’s latest threat to slap elevated tariffs on Chinese goods will likely push Beijing to ramp up stimulus in order to shield its economy from additional harm, a Goldman Sachs strategist said on Friday.
“We do think that one of the actions that China would likely take ... is to continue with stimulation of the domestic economy,” Moe told CNBC’s “Street Signs.”
“The external side has been weak and that has obviously been exacerbated by the U.S.-China trade friction. So, in order to offset that negative effect from the external side of the economy, there needs to be corresponding investments or activity which support domestic demand,” Moe added.
· Analysts from Citi said the latest round of U.S. tariffs on Chinese goods would reduce China’s exports by 2.7% and slash GDP growth by 50 basis points. That’s on top of the economic damage already caused by previous rounds of tariffs, the analysts wrote in a late Thursday note.
Even then, the analysts said they expect Beijing to “formally use the strategy of waiting it out” rather than “giving in” to Washington’s demands. That means monetary policy will likely become more accommodative, and fiscal policies focusing on infrastructure investment and lifting rural consumption will “play a more proactive role” in supporting growth, according to Citi.
· An economist from Dutch bank ING, Iris Pang, wrote in a Friday note that China may want to drag out the tariff fight with the U.S. because “a full-blown trade war is unlikely to help President Trump’s chances” in the 2020 election.
· U.S. President Donald Trump’s surprising move to impose more tariffs on China is a serious misreading of China’s pressure points, according to Eurasia Group analysts.
The latest escalation signaled a return to the way Trump negotiated with China — by trying to build more leverage over Beijing amid ongoing talks — before both sides agreed to a ceasefire in late June, Michael Hirson, Paul Triolo and Jeffrey Wright wrote in a Thursday note.
“The threat is a serious gamble for Trump,” they said. “It likely signals that he would prefer to reach a deal on his terms before the 2020 election, and is willing to use the tools at his disposal to build pressure on China to that end.”
The Eurasia Group analysts said it is possible that Thursday’s tariff threat is meant to spur China into buying more American agricultural products but, they added, Beijing is unlikely to respond the way Trump hopes. It would be “extremely embarrassing for China to step up imports from the U.S. under the threat of blackmail,” they wrote.
· U.S. President Donald Trump’s latest salvo in his ongoing trade battle with Beijing is likely to hurt the American economy more than China’s, analysts told CNBC on Friday.
“It’s obviously a very hard-line tactic but I think it’s ... a sword at the throat of the American economy more than the Chinese economy,” Andrew Collier, managing director of Orient Capital Research, told CNBC’s “Street Signs” on Friday.
· That sentiment was echoed by other experts, including Corrine Png, regional head of equities research at AIA Investment Management, who described Trump’s move as “actually quite counterproductive.”
She said the additional 10% tariffs, which primarily targets consumer-related products such as toys, laptops and mobile phones, “actually hurts the U.S. consumers more than China.”
· China can hold out longer than the U.S. in the ongoing bilateral trade dispute, a global strategist told CNBC on Friday.
“In terms of time frame, I would argue China has greater pain tolerance,” said Eric Robertsen, head of global macro strategy at Standard Chartered Bank.
Indeed, Trump’s “No. 1 priority” is to get reelected next year, and China is trying to wait out the American election cycle, said Robertsen, who is also Standard Chartered’s global head of foreign-exchange, rates and credit research.
“China, very clearly, is trying to wait out the U.S. election cycle with the hope that maybe we get somebody different in the White House, ” he added.
Meanwhile, Beijing is likely to use fiscal rather than monetary stimulus to prop up its domestic economy, said Robertsen.
Notably, the People’s Bank of China did not cut rates in the wake of the U.S. Federal Reserve’s latest interest rate cut this week. Robertsen explained that move as likely demonstrating China wants a stable currency to attract capital to its onshore markets.
· China’s foreign ministry pushed back against President Donald Trump’s latest tariff threat on Friday, reportedly saying the world’s largest economy should give up it’s illusions, shoulder some responsibility and come back to the right track on resolving the trade war.
· Investment flows between the U.S. and China fell to the lowest level in five years amid escalating tensions between the two countries, according to a study led by research firm Rhodium Group.
Two-way direct and venture capital investments between the U.S. and China totaled $13 billion in the first six months this year, according to the report on Thursday. That’s an 18% fall from the second-half of 2018 and the lowest level since January-to-June in 2014, the report published Thursday said.
· Japan’s cabinet on Friday approved a plan to remove South Korea from a list of countries that enjoy minimum export controls, a move likely to escalate tensions fueled by a dispute over compensation for wartime forced laborers.
The decision to drop South Korea from the “white list,” a step that has been protested fiercely by Seoul, comes a month after Japan tightened curbs on exports to South Korea of three high-tech materials needed to make memory chips and display panels.
The decision was approved by the cabinet and would take effect from Aug. 28, Industry Minister Hiroshige Seko told a briefing. He said the trade control was not a countermeasure and was done from the standpoint of Japan’s national security.
· Oil prices rose around 2% on Friday, regaining ground after the biggest falls in years as U.S. President Donald Trump imposed more tariffs on Chinese imports, intensifying the trade war between the world’s two biggest economies and crude consumers.
Brent crude futures LCOc1 slumped more than 7% on Thursday, their steepest drop in more than three years. U.S. West Texas Intermediate (WTI) crude futures CLc1 fell nearly 8%, posting its worst day in more than four years,
The collapse ended a fragile rally built on steady drawdowns in U.S. inventories, even as global demand looked shaky because of the trade dispute.
Brent futures rose $1.21, or 2%, to $61.71 a barrel by 0657 GMT, while WTI futures gained 87 cents, or 1.6%, to $54.82 a barrel.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices punched through support in the 54.72-56.09 area, opening the door for a decline to test two-month lows near the $50/bbl figure. Alternatively, a rebound back above the $56/bbl mark targets trend line resistance set from late April. This is immediately followed by the 63.59-64.43 price inflection zone.
Reference: CNBC, Reuters, FXStreet
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