· Safe haven currencies the Japanese yen and Swiss franc gained on Wednesday after New Zealand’s central bank cut interest rates by more than expected, feeding concerns about the weak global economy.
The Reserve Bank of New Zealand cut its official cash rate to a record low of 1% and flagged the possibility of using negative rates to stimulate the economy, sending its currency to 3-1/2 year lows. The Reserve Bank of India and the Bank of Thailand also cut rates.
While central banks globally are adopting a more dovish outlook, investors remain worried.
The New Zealand dollar was last down 1.1% at $0.645 , bouncing off the session low of $0.6379. The Aussie fell 0.49% to $0.6725 as markets ramped up bets that Australia would cut rates faster and deeper than expected.
The session low for the Australian dollar was $0.6678, the lowest since early 2009.
The Japanese yen gained 0.39% to 106.03 against the greenback, nearing an eight-month high of 105.51 reached on Tuesday.
The yuan weakened on Wednesday, but held above an 11-year low reached the previous session, before Beijing appeared to take steps to stabilize the currency. The offshore yuan fell 0.52% to 7.0891.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.608 after seeing lows below 97.5 yesterday.
· China sets the yuan midpoint at 7.0039 per dollar, weakest since April 2008
Investors again rushed for the safety of government bonds and dumped stocks on Wednesday, exacerbating the August exodus away from risk assets as traders around the world settled in for a U.S.-China trade war without an end in sight.
The flight to safety sent the yield on the 10-year Treasury note — used as a benchmark for mortgage rates and auto loans — falling to a low of 1.595%, the lowest since autumn 2016. The yield on the 30-year Treasury bond bottomed around 2.12%, near its all-time low reached in 2016. Yields pared some of their declines later in the session, but held steady near multiyear lows.
· U.S. Treasury yields tumbled on Wednesday, with 30-year yields approaching record lows, on growing fears over a global economic downturn and bets the Federal Reserve would have to pick up its pace of interest rate cuts to counter recession risks.
· Thirty-year yields US30YT=RR were down 3.60 basis points at 2.234% after it hit 2.123% earlier, which was not far from an all-time low of 2.089% set in July 2016, according to Refinitiv data.
Bond yields fell around the world with German yields hitting record lows in negative territory. That came in the wake of several Asian central banks lowering their key interest rates to address growth concerns stemming from the escalating trade war between China and United States.
· The U.S. dollar’s dominance will come to an end if the Federal Reserve gives in to pressure from financial markets and President Donald Trump and chops interest rates another 50 basis points this year, a Reuters poll of market strategists showed.
While the greenback’s allure has remained intact on solid demand for dollar-denominated assets, over 40% of the strategists who answered a separate question said a change in Fed policy expectations would drive the currency from here.
· U.S. President Donald Trump on Wednesday said his tough stance on China’s economic and trade policies would ultimately benefit the American economy, even as Beijing signaled it could strike back by curbing sales of chemicals known as rare earths that are used in everything from iPhones to military equipment.
White House officials say they still expect Chinese negotiators to come to Washington in September for talks, and that the latest tariffs could still be averted if the world’s two largest economies make progress on a trade agreement.
But hopes for a deal are dimming and domestic pressure is growing for Trump to cut a deal with Beijing.
Goldman Sachs on Tuesday said it no longer expects the United States and China to reach agreement before the November 2020 presidential election given the “harder line” being pursued by both sides.
Gary Locke, who served as U.S. ambassador to China from 2011 to 2014, said it was in Washington’s own interest to dial back tensions and work toward some kind of modest deal with Beijing.
Fred Bergsten, a former senior U.S. Treasury official, said bearish financial markets and weakening U.S. economic indicators could prompt Trump to delay the Sept. 1 tariffs.
· Farmers aren’t the only ones affected. Trump’s battle with China over trade deficits, alleged intellectual property theft and forced tech transfers has repeatedly spooked investors around the world. And polls show that his biggest moves in the trade war — namely, slapping tariffs on billions of dollars’ worth of Chinese goods — aren’t especially popular with the broader public.
But U.S. soybean, pork and dairy farmers in particular have seen their revenue from China evaporate as China scaled up its own tariffs on U.S. imports, now worth $110 billion.
Chinese buyers imported $19.5 billion in U.S. farm goods in 2017, a number that was more than halved the following year as the tariffs made U.S. agriculture products more pricey, The Wall Street Journal reported.
The U.S. currently leverages 25% tariffs on $250 billion in Chinese goods. And Trump has shown no indication that he’s willing to back down against Beijing, though his surrogates have suggested that the White House is willing to be flexible on the new tariffs, depending on what happens in the next round of trade talks, scheduled for September.
· “Many investors have expressed the view that China is prepared to accept an economic downturn (and thus a global economic downturn) to prevent President Trump’s reelection,” Naka Matsuzawa, Nomura’s chief rates strategist in Tokyo, said in a note Wednesday following meetings with Asian clients.
To retaliate against Trump’s surprise tariffs threat last week, China struck back swiftly by halting purchases of U.S. agricultural products, which particularly hurts farmers in the Midwest — states that are crucial for Trump’s presidential win in 2020.
”[China] could also further curb purchases of agricultural goods, possibly as a means of undermining Trump’s support base among rural voters ahead of the November 2020 presidential election,” Mark Haefele, UBS’ global chief investment officer, said in a note Tuesday.
“China might be tempted to wait for a change of leadership in Washington,” David Bianco, DWS Group’s chief investment officer, said in a note Tuesday. “If necessary, China might react with targeted measures designed to endanger Trump’s re-election, even at the risk of collateral damage to the global economy and financial markets.”
· Trump knows it all too well that this is China’s intention. He warned recently that China could get a much tougher deal if and when he gets reelected.
· China is drawing up new measures aimed at stabilising foreign trade, the official China Securities Journal reported on Thursday, to offset the effects of a bitter trade war with the United States.
The newspaper, run by the Xinhua agency, said several government departments were currently drafting policies and considering revising catalogues specifying what technologies should be imported. They were also looking at expanding cross-border e-commerce and launching new import trade demonstration zones.
Importing new high-end technologies would help promote the “upgrade” and “internationalisation” of China’s economy, the paper said, citing government and industry officials.
· An order by U.S. President Donald Trump to freeze the Venezuelan government’s assets and cut off its funds is an act of “gross interference” and a violation of the norms of international relations, China’s foreign ministry said.
China would continue to cooperate with Venezuela, ministry spokeswoman Hua Chunying said in a statement issued late on Wednesday, and urged the United States to respect international law and stop trying to stir up discord.
· The Japanese government is set to allow exports of some semiconductor manufacturing materials to South Korea, the first such approval since Tokyo tightened export controls on the products in July, Nikkei reported s.nikkei.com/2GV5Fnc on Wednesday.
The Ministry of Economy, Trade and Industry is likely to announce the approval as soon as Thursday, Nikkei said.
· New Zealand’s central bank stunned markets on Wednesday by cutting interest rates a steep 50 basis points and even flagged the risk of going nuclear by taking rates below zero, a radical shift that drove its currency to three-and-a-half year lows.
· Oil prices tumbled more than 4% on Wednesday to a seven-month low, extending recent heavy losses following a surprise build in U.S. crude stockpiles and fears that demand will shrink due to Washington’s escalating trade war with Beijing.
Brent crude futures were down 4.4%, at $56.35 a barrel, setting a seven-month low. Prices have lost more than 20% since their 2019 peak in April. U.S. West Texas Intermediate (WTI) crude futures settled down 4.7%, at $51.09 a barrel.
Oil fell early on worries about the trade war, then extended losses after U.S. government data showed a build of 2.4 million barrels in U.S. stockpiles instead of the 2.8 million draw analysts had expected. U.S. crude oil inventories are about 2% above the five-year average for this time of year.
Reference: CNBC, Reuters
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