The U.S. dollar rose 1.49% to 106.85 Japanese yen per dollar. The yen is a safe-haven asset which benefits in moments of geopolitical uncertainty and during economic downturns. The U.S.-China trade war had begun to affect economic growth in the United States and raise fears that the conflict could lead to a recession.
· Other safe havens like Treasury bonds also saw prices fall as investors moved money into riskier assets. The dollar index was 0.38% higher at 97.749, and the offshore Chinese yuan was 1.38% stronger at7.0050.
The 10-year U.S. Treasury note US10YT=RR last yielded 1.691% after climbing 6 basis points overnight, knocked away from a three-year low of 1.595% plumbed a week ago.
· The news had a modest effect on interest rate forecasts for 2019. Two to three cuts have been priced in by the end of the year, though on Tuesday morning expectations of two rate cuts increased to 47.9%from 45.7% a day prior, according to CME Group’s FedWatch tool.
Financial markets have fully priced in an interest rate cut in September. Expectations that rates will be cut by 25 basis points rose to 92.7% from 84.6% a day prior as fewer traders bet on a more dramatic 50-basis-point cut next month.
· Still, some analysts cautioned a moderate response. “The fact is that we have seen this film before, and it could be naive to think so much on the back of this headline,” said Naeem Aslam, chief market analyst at ThinkMarkets in London
· The U.S. dollar was also buoyed on Tuesday after the United States reported that consumer prices in July increased, though the easing of trade tensions could tamp down further inflationary pressures.
The Labor Department on Tuesday reported that the consumer price index increased 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1% for two straight months. In the 12 months through July, the CPI increased 1.8% after advancing 1.6% in June. Economists polled by Reuters had forecast the CPI would accelerate 0.3% in July and rise 1.7% on a year-on-year basis.
· The United States Trade Representative announced Tuesday certain products including clothing and cellphones are being removed from the tariff list based on “health, safety, national security and other factors” and will not face additional tariffs of 10%. Other tariffs will be delayed to Dec. 15 from Sep. 1 for certain articles, it said.
“Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing,” the statement from the USTR said.
· President Donald Trump said Tuesday he delayed the tariffs ahead of Christmas season to avoid potential impact on holiday shopping. He added China would very much like to make a trade deal.
· Argentina’s peso closed weaker again on Tuesday following a second day of market turmoil triggered by opposition candidate Alberto Fernandez’s landslide victory in a primary election that dealt a severe blow to President Mauricio Macri’s re-election chances.
The peso closed 4.29% lower at 55.9 per U.S. dollar after touching 59 to the dollar earlier. The currency had hit an all-time low on Monday of 65 to the dollar, a drop of 30%, on fears that a Fernandez government could take Argentina back to interventionist economic policies.
· Hong Kong’s airport resumed operations on Wednesday, rescheduling hundreds of flights that had been disrupted over the past two days as protesters clashed with riot police in a deepening crisis in the Chinese-controlled city.
· Oil prices rose almost 5% on Tuesday after the United States said it would delay imposing a 10% tariff on certain Chinese products, easing concerns over a global trade war that has pummeled the market in recent months.
Brent futures were up 4.5%, at $61.20 a barrel, while U.S. West Texas Intermediate (WTI) crude was up 4%, at $57.10.
Reference: CNBC, Reuters
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