· The yen rose on Tuesday as some investors tempered their optimism about the chances for a quick resolution to the U.S.-China trade war, which boosted so-called risk-off trades.
The dollar came under additional pressure versus the yen as a decline in U.S. Treasury yields showed some investors still favored the safety of government debt.
While Washington and Beijing have shown a willingness to return to the negotiating table to resolve their trade row, there are lingering concerns about a lack of a clear path towards resolving a dispute that has dragged on for more than a year and hurt global growth, corporate profits and investments.
“The dollar rallied overnight due to optimism about a trade deal, but there’s a sense that the market has gotten a little ahead of itself,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.
“Some traders can book a little profit here. There are still so many issues that can trigger a clash between the United States and China. Treasuries shows the market is still somewhat sceptical.”
The yen rose around 0.4% in Asian trading to 105.73 per dollar.
The dollar index measuring the greenback against a basket of six major currencies fell 0.06% to 97.960.
Benchmark 10 year U.S. treasury yields fell to 1.5232% in Asia.
The yield curve was inverted as 2-year yields traded at 1.5267%, which is commonly considered a sign of an impending economic recession.
· USD/JPY targets 100.00 or lower on falling UST-JGB yield differentials – Citibank
In the view of the analysts at Citi Group, the risks remain skewed to the downside in USD/JPY in the coming months and breach of the key support near 104.80/50 could expose 100.00 levels.
Key Quotes:
“Escalating trade tension lead money flow into JPY.
Fed Chair Powell's speech in Jackson Hole implied series of downside risks but did not mention any measures. The view was seen as leaning to dovish.
Any further BoJ ease will be reactive to ECB/ Fed easing and therefore likely following JPY strength.
Moreover, supports to Japanese activity may also stem from upcoming sporting events including the Rugby World Cup and 2020 Olympics.
As such, a continuing drop in UST-JGB yield differentials would likely point to a move back to $/JPY 100 or lower.”
· China fixed the daily midpoint rate for the yuan at levels not seen for more than a decade on Tuesday as Beijing remains locked in a protracted trade war with Washington.
The People’s Bank of China set the midpoint at 7.0810 per dollar — weaker than the previous day’s fix, but stronger than the 7.1055 level the market was expecting, according to a Reuters estimate.
By setting the yuan midpoint at a level stronger than expected, China could be signalling to the markets that it may want to slow down the pace of the currency’s depreciation, Tommy Xie, head of Greater China research at Singapore’s OCBC Bank, told CNBC.
Analysts have yet to reach a consensus on what could be the next closely-watched level for the yuan. But most say that it depends on how the trade war escalates, or de-escalates.
· Profits at China’s industrial firms returned to growth in July helped by improvements in the petrochemical and auto sectors but a broader economic slowdown and the protracted U.S. trade war are expected to weigh on the business outlook.
Industrial profits rose 2.6% in July year-on-year to 512.7 billion yuan ($72.28 billion), according to data released by the National Bureau of Statistics (NBS) on Tuesday, recovering from a 3.1% fall in June.
· President Donald Trump left the G-7 summit on Monday taking a softer tone toward China, just days after spooking financial markets with another escalation in their trade war. Yet amid all the soothing words, Trump made it clear that he wasn’t abandoning his rough and tumble tactics to force a trade deal on China.
After spending a weekend listening to fellow Group of Seven leaders urging him to ease tensions with China, Trump pointed to recent calls and an amiable speech by China’s top negotiator as signs Beijing wanted a deal. He shrugged off, however, the uncertainty his trade war has caused and showed no signs of backing down in an increasingly bitter trade dispute that’s chipping away at global economic growth and sending world markets tumbling.
· Investors have set their eyes on “seriously looking at Thailand ” as the U.S.-China trade war ramps up, according to the president and CEO of U.S.-ASEAN Business Council, Alexander Feldman.
Vietnam has frequently been cited as one of the largest beneficiaries in the trade war as companies shift their production out of China to avoid tariffs.
However, Vietnam’s labor market is tightening, and businesses are now looking to move manufacturing into other Asian countries instead — and that includes Thailand, Feldman told CNBC on Tuesday.
According to Feldman, three “name brand” companies are already moving people from China to Thailand. He did not name them.
“Those three companies are moving divisions, but you know, I think we’re looking at the tens of millions, hundreds of millions, maybe more. That’s just for Thailand,” he said.
In May 2017, even before U.S. President Donald Trump started imposing additional tariffs on China, motorcycle maker Harley Davidson already began moving its production into Thailand. That move has paid off, said Feldman.
Harley Davidson announced “a 181% increase in sales” for its motorcycles in Malaysia that came from their plant in Thailand, “to serve the market in Malaysia,” he added.
· Weaker exports were the main reason for Germany’s shrinking economy in the second quarter, detailed data showed on Tuesday, confirming a preliminary reading of a 0.1% contraction on the quarter.
The Federal Statistics Office said exports fell more strongly than imports from April to June which meant that net trade deducted 0.5 percentage points from overall economic expansion.
· French President Emmanuel Macron said on Monday G7 leaders had not reached a consensus on inviting Russia to next year’s G7 summit in the United States.
Macron added that he and German Chancellor Angela Merkel would organize a summit in the coming weeks with the Russian and Ukrainian leaders to obtain results on the crisis in Ukraine.
· French manufacturing companies have lowered their investment plans from only a few months ago, according to a quarterly survey from the INSEE statistics agency on Tuesday.
Manufacturers plan on increasing investments in 2019 by 6%, down from a previous forecast in April of 11%, INSEE said, adding that the decrease was more than the 2 percentage points seen on average this time of year.
· U.S. President Donald Trump, responding to a question about climate change after skipping a G7 session on the issue, said on Monday that American wealth is based on energy and he will not jeopardize that for dreams and windmills.
The G7 leaders discussed the rainforest fires in Brazil and agreed to draw up an initiative for the Amazon to be launched at the U.N. General Assembly in New York next month.
· Hong Kong leader Carrie Lam said on Tuesday the escalation of violence in anti-government protests that have rocked the Asian financial center for three months is becoming more serious.
Lam was speaking in public for the first time since anti-government demonstrations escalated on Sunday, when police fired water cannon and volleys of tear gas in running battles with protesters who threw bricks and petrol bombs.
Hong Kong’s Beijing-backed leader said she was confident the city’s government could handle the unrest by itself and she would not give up on building a platform for dialogue.
· Trade negotiations between the United States and Europe will be difficult but the global economic downturn increases the chances for the parties to reach a deal, German Economy Minister Peter Altmaier said on Tuesday.
· Japanese Economy Minister Toshimitsu Motegi said on Tuesday he did not think U.S.-Japan trade talks would result in an outcome that would cause concern for Japanese automakers.
Motegi made the remarks to reporters in Tokyo after the United States and Japan agreed in principle to core elements of a trade deal on Sunday at a Group of Seven leaders summit in Biarritz, France.
· Iran will not talk to the United States until all sanctions imposed on Tehran are lifted, President Hassan Rouhani said on Tuesday, a day after President Donald Trump said he would meet his Iranian counterpart to try to end a nuclear standoff.
Trump said on Monday he would meet Iran’s president under the right circumstances to end a confrontation over Tehran’s 2015 nuclear deal with six powers and that talks were underway to see how countries could open credit lines to keep Iran’s economy afloat.
Rouhani said Iran was always ready to hold talks. “But first the U.S. should act by lifting all illegal, unjust and unfair sanctions imposed on Iran.”
· Oil prices rose on Tuesday after U.S. President Donald Trump predicted a trade deal with China after positive comments by Beijing, calming nerves after a round of tit-for-tat tariff hikes had sent markets reeling.
Brent crude LCOc1 was up by 26 cents, or 0.4%, at $58.96 a barrel by 0636 GMT, after falling 1% in the previous session, dropping for a third day in a row.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were up by 23 cents, or 0.4%, at $53.87 a barrel, having also dropped 1% on Monday for a fourth day of declines.
Trump on Monday said he believed China was sincere about wanting to reach a deal, while Chinese Vice Premier Liu He said China was willing to resolve the dispute through “calm” negotiations, settling global markets.
Reference: CNBC, Reuters, Bloomberg
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