· The offshore Chinese yuan offloaded on Wednesday the gains it made the day before on the back of the announcement that the United States will delay the recently announced tariffs on Chinese imports until later this year.
The fall in the yuan mirrored analysts’ views that the delay in tariffs, although a positive step, wasn’t even close to resolving the US-China trade war. A strengthening of the Japanese yen on Wednesday also reinforced these views and showed that risk appetite hasn’t fully made a comeback to the financial markets.
Weaker-than-expected Chinese economic data contributed to yuan falls. China’s closely watched industrial output rose in July at the slowest pace in more than 17 years.
· “The lack of visibility on trade war outlook means that yesterday’s price action (rise in yuan, fall in yen) is unlikely to translate into a long-lasting trend,” said ING analysts in a note to clients. “One should not get carried away,” they said.
· The Japanese yen was last up by 0.4% against the dollar at 106.33, having reached a one-week low the day prior to that.
· The euro was flat at $1.1180 despite weaker second-quarter German gross domestic product data as the quarter-on-quarter contraction was largely expected. Moreover, the year-on-year figure was higher than economists polled by Reuters predicted.
Traders are waiting for the first estimate of eurozone GDP data, due at 0900 GMT. A Reuters poll forecasts that second-quarter GDP growth remained unchanged at 0.2% quarter-on-quarter and at 1.1% year-on-year.
· Recession fears remain a consistent drag on financial markets and the threat has grown as the U.S. 10-year/2-year treasury yield curve inches closer to inverting.
Although investor sentiment has improved slightly after the U.S. government said it would ease some of its import tariffs with China, overnight the 2-year came to within one basis point of meeting the 10-year bond yield. The yield differential is at its lowest point since 2007.
Fixed income strategists at TD Securities, in a note published last week, placed a 55% chance that the U.S. falls into a recession.
“This supports our Fed call of 50bp of more eases in 2019 (September and October), followed by an additional 75bp of easing in 2020,” the analysts said.
Daniel Ghali, commodities strategist at TD Securities, added that because of the growing fears of a recession, an inverted yield curve is not going to add much to the overall picture. He added that he doesn’t expect an inverted yield curve to have much impact on gold prices.
“When we finally get an inversion of the yield curve there will be a bunch of headlines and that will be bullish for gold, but I don’t see that driving prices to new highs,” he said.
· GBP/USD struggles to justify downside pressure amid political uncertainty as traders await inflation data for fresh impulse. The US Dollar seesaws due to the shift in market sentiment. Looking forward, the July month UK CPI will be the key for the Cable traders to watch out for.
While pair’s downside beneath two-day long support-line, at 1.2055, can trigger fresh declines to 1.2015 and 1.2000 round-figure, Thursday’s low near 1.2095 acts as an immediate resistance to aim for 1.2155.
· The German economy shrank in the second quarter, dragged down by a slump in exports, data showed on Wednesday, as manufacturers in Europe’s largest economy struggle against weaker foreign demand and trade disputes.
Gross domestic product (GDP) fell 0.1% quarter-on-quarter after a confirmed growth rate of 0.4% in the first three months of the year, the Federal Statistics Office said.
The preliminary reading for April-June was in line with a Reuters poll of analysts.
The annual growth rate slowed to 0.4% in the second quarter from 0.7% in the first, calendar-adjusted data showed. That beat the poll forecast of +0.1%.
· Analysts at ING are out with their afterthoughts on the German Q2 GDP release after the economy shrank by 0.1% QoQ in the second quarter.
Today’s GDP report definitely marks the end of a golden decade for the German economy.
Since the end of the 2008/09 recession, the economy has grown by an average of 0.5% QoQ every quarter. In fact, the economy grew in 35 out of the last 40 quarters.
· China reported a raft of unexpectedly weak July data on Wednesday, including a slump in industrial output to more than 17-year lows, pointing to further slowing in the economy as the U.S. trade war takes a heavier toll on businesses and consumers.
ctivity in China has continued to cool despite a flurry of growth measures over the past year, raising questions over whether more forceful stimulus may be needed, even at the risk of racking up more debt.
After a flicker of improvement in June, analysts said the latest data was evidence that demand faltered across the board last month, from industrial output and investment to retail sales.
That followed weaker-than-expected bank lending and gloomy factory surveys, reinforcing expectations that more policy support is needed soon.
“China’s economy needs more stimulus because the headwinds are pretty strong and today’s data is much weaker than consensus,” said Larry Hu, head of Greater China economics at Macquarie Group in Hong Kong.
“The economy is going to continue to slow down. At a certain point, policymakers will have to step up stimulus to support infrastructure and property. I think it could happen by the end of this year.”
Industrial output growth slowed markedly to 4.8% in July from a year earlier, data from the National Bureau of Statistics showed, lower than the most bearish forecast in a Reuters poll and the weakest pace since February 2002.
· China’s economic growth cooled to a near 30-year low of 6.2% in the second quarter, and business confidence has remained shaky, weighing on investment.
While officials have cautioned it would take time for higher infrastructure spending to kick in, construction growth has been more muted than expected.
Infrastructure investment - a powerful growth driver - rose 3.8% in the first seven months from a year earlier, slowing from 4.1% in the first half despite massive local government bond issuance, mainly to fund road and rail projects and other civic works.
In a sign the housing market’s resilience may be waning as Beijing cracks down on speculation, property investment slowed to its weakest this year. It rose 8.5% on-year in July, from June’s 10.1%. Though home sales inched back to growth, new construction starts cooled.
Retail sales are also pointing to growing consumer caution, most evident in falling auto sales but also in property-related spending on items such as home appliances and furniture.
“We maintain our view that (economic) growth has yet to bottom out and expect Beijing to maintain its easing policy stance,” economists at Nomura said in a note.
Nomura expects growth will slow to 6.0% in the third and fourth quarters — the bottom end of the government’s target range.
· A spokeswoman for China’s Foreign Ministry claimed Tuesday that recent comments from American lawmakers — including House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Mitch McConnell, R-Ky. — demonstrate that Washington’s real goal is to incite chaos in the city.
A host of public statements show it’s accurate to say American officials have been commenting about Hong Kong — which has seen increasing violence between pro-democracy protesters, counter-protesters, and police. Still, Hua accused U.S. politicians of intentionally distorting their assessments and spurring clashes.
U.S. President Donald Trump said in a Tuesday Twitter post that he “can’t imagine why” anyone would blame the United States for “the problems” in Hong Kong.
Pelosi, for one, has issued several statements about Hong Kong. In an Aug. 6 message, she wrote that “the people of Hong Kong are sending a stirring message to the world: the dreams of freedom, justice and democracy can never be extinguished by injustice and intimidation.”
McConnell, meanwhile, said on Twitter that “the people of Hong Kong are bravely standing up to the Chinese Communist Party as Beijing tries to encroach on their autonomy and freedom.” He added that “any violent crackdown would be completely unacceptable.”
· Chinese state media called on Beijing on Wednesday to deal with protests in Hong Kong more decisively after a reporter from one of China’s largest government-backed newspapers was caught up in overnight clashes.
Demonstrators and riot police clashed at Hong Kong’s airport late on Tuesday after flights were cancelled for a second day. Protesters at one point held a man who Chinese media have said was a reporter from China’s Global Times newspaper.
· Japanese and South Korean vice foreign ministers will meet this week to discuss the issue of forced World War Two laborers, Kyodo News reported on Wednesday, amid an escalating diplomatic and economic feud between the two Asian countries.
· Oil prices fell on Wednesday on disappointing economic data from China and a rise in U.S. crude inventories, erasing some of the sharp gains in the previous session after the U.S. said it would delay tariffs on some Chinese products, easing trade tensions.
Brent crude was down 46 cents, or 0.8%, at $60.84 a barrel at 0639 GMT, after rising 4.7% on Tuesday, the biggest percentage gain since December.
U.S. oil was down 62 cents, or 1.1%, at $56.48 a barrel, having risen 4% the previous session, the most in just over a month.
China reported a raft of unexpectedly weak data for July, including a surprise drop in industrial output growth to a more than 17-year low, underlining widening economic cracks as the trade war with the United States intensifies.
“Deteriorating China industrial output and consumer spending suggest the fundamental picture isn’t great and the demand for energy may be under the pressure,” said Margaret Yang, market analyst at CMC Markets.
Reference: CNBC, Reuters, FX Street
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