· The dollar index was slightly higher on Thursday and the Chinese currency strengthened after the Chinese central bank fixed the yuan at a stronger level than expected, boosting risk appetite.
The People’s Bank of China (PBOC) set the midpoint rate at 7.0039. The fixing was still the weakest in more than a decade, however.
Data showing a surprise increase in Chinese exports in July from a year earlier added to the improving sentiment.
The dollar fell 0.22% against the offshore yuan to 7.044. The dollar index against a basket of currencies was 0.08% higher at 97.62.
Trade tensions are likely to continue to weigh on the Chinese currency and risk appetite, with no resolution to the U.S.-China dispute in sight.
Increasingly dovish central bank policies are also adding to nerves that the global economic outlook may be worse than feared - central banks in New Zealand, India and Thailand all cut rates on Wednesday.
“The risk of these central banks trying to out-dove one another is, the more they do, the more they instill panic into market participants that this is worse than expected, Issa said.
· The euro jumped briefly on Thursday after Reuters reported that Germany is considering ditching its long-cherished balanced budget goal by issuing new debt to finance a costly climate protection package. The single currency has been boosted in recent days by the unwind of emerging market carry trades that were funded in euros.
The euro dropped in afternoon trading after Italian Deputy Prime Minister Matteo Salvini said there was no way to patch up differences in Italy’s ruling coalition and the only way forward was to hold new elections.
· At around 3:51 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 1.72%, while the yield on the 30-year Treasury bond was also higher at 2.24%.
Yields’ move higher on Thursday came after the 10-year yield fell to a fresh three-year low and the 30-year bond rate neared an all-time low on Wednesday as investors continued to rush for safety amid an intensifying trade war between the world’s two largest economies.
· The yen rose on Friday on renewed concerns about the U.S.-China trade dispute after a report that the White House is delaying a decision on allowing U.S. companies to do business with China’s Huawei Technologies.
The Bloomberg report on Huawei, a telecoms equipment maker that Washington has accused of espionage and stealing intellectual property, sparked a flurry of risk-off trades which also pushed up gold prices and sent U.S. stock futures lower.
The dollar fell 0.2% to 105.84 yen JPY=EBS, on course for its second weekly decline. If the dollar manages to break its Aug. 7 low of 105.50 yen, it would next target 105.00 yen, Ishikawa said.
· China’s central bank on Friday set the official midpoint reference for the yuan at 7.0136 per dollar.
That followed Thursday’s rate of at 7.0039 yuan per dollar — the weakest level since April 21, 2008. Analysts were expecting the People’s Bank of China to set the midpoint at 7.0222 at per dollar on Friday.
· Central banks in emerging Asia are poised to cut interest rates as they bolster their economies against a wave of global threats.
The global outlook has worsened in recent days, with the US threatening more tariffs against China and labeling it a currency manipulator. That’s roiled financial markets and raised fears of a deeper economic downturn, risks that Asian policy makers will want to protect against.
· The Bangko Sentral ng Pilipinas (BSP), or the central bank of the Philippines, decided on Thursday to cut the key interest rates by 25 basis points to 4.25 percent after the government reported that the second-quarter economic growth was the slowest in four years.
The announcement came hours after the Philippine Statistics Authority (PSA) reported the Philippines' gross domestic product (GDP) grew at a slower pace of 5.5 percent in the second quarter of 2019, the slowest growth in 17 quarters.
The BSP said the decision was based on its assessment that price pressures have continued to ease since the previous meeting.
It said inflation expectations has also moderated further to levels consistent with the inflation target based on the BSP's survey of private-sector economists.
Moreover, it said the risks to the inflation outlook continue to be seen as broadly balanced for 2019 and 2020, while they are seen to tilt to the downside for 2021.
"Weaker global economic prospects continue to temper the inflation outlook. The potential adverse effects of a prolonged El Nino episode to inflation have subsided," the BSP said.
· Steve Eisman, the investor of “Big Short” fame, is not worried about the American financial system saying it is sound and that there is little risk of a systemic crisis like the one he effectively bet against more than a decade ago.
His biggest worry however is the Hong Kong protests, which he says could endanger any kind of trade deal with China and hurt the global economy.
“The people who are protesting are not backing down, the Chinese government doesn’t seem to be backing down, so if cooler heads don’t prevail it’s possible things in Hong Kong could get very ugly.”
“That is not going to be a positive in terms of negotiating a trade deal between the United States and China, its not going to be a positive at all for the global markets,” said Eisman.
· Japan’s economy grew much more than expected in April-June to mark the third straight quarter of expansion, as robust private consumption and business investment offset the hit to exports from cooling global demand.
The data offers some relief for the Bank of Japan, which is under pressure to follow other central banks and ramp up stimulus to head off heightening global risks.
Gross domestic product (GDP) grew at an annualized 1.8% in the second quarter, the Cabinet Office’s preliminary data showed on Friday, far exceeding a median market forecast for a 0.4% increase. It followed a revised 2.8% gain in January-March.
· Oil jumped more than $1 a barrel on Thursday on expectations that falling prices could lead to production cuts, coupled with a steadying of the yuan currency after a week of turmoil spurred by an escalation in U.S.-China trade tensions.
Brent crude was up $1.29 at $57.53 a barrel, after hitting a session high of $58.01. U.S. West Texas Intermediate (WTI) crude futures settled up $1.45 per barrel at $52.54, 2.84% higher.
“Brent and WTI were rebounding on the combination of a stronger-than-expected official fix in the yuan, alleviating currency war fears,” said Harry Tchilinguirian, global oil strategist at BNP Paribas in London.
Reports that Saudi Arabia, the world’s biggest oil exporter, had called other producers to discuss the slide in crude prices might also have supported the market, he said.
Reference: CNBC, Reuters, Xinhua, Bangkok Post
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