· The Japanese yen rose and 10-year Treasury yields fell on Tuesday as investors fled to safer assets amid worries the U.S.-China trade conflict would get worse, days after both sides announced new tariffs.
On Friday, China said it would increase tariffs on $75 billion worth of American goods. The United States retaliated by saying it would raise existing tariffs on $250 billion worth of Chinese goods to 30% from 25%on Oct. 1.
U.S. President Donald Trump also said he would tax another $300 billion worth of Chinese imports 15%, rather than the 10% he had planned. Those levies go into effect on Sept. 1.
On Monday, speaking on the sidelines of the G-7 summit of world leaders in France, Trump said Chinese officials had contacted U.S. trade counterparts overnight and offered to return to the negotiating table.
Trump’s comments sparked a wave of so-called risk-on trades, which initially boosted the dollar, weakened safe-haven currencies, and lifted stock markets.
However, doubts crept in after a Chinese Foreign Ministry spokesman said he was unaware that a phone call had taken place. The Commerce Ministry, which typically releases statements on trade calls, did not respond to a request for comment.
The Japanese currency was last up by 0.5% at 105.63 against the dollar. That wasn’t as strong as Monday’s gain, when it reached a three-year high, excluding the January flash crash. The yen has gained 3.6%against the dollars as the trade war drove traders to safe-haven assets.
The yen is “likely to strengthen further if tensions continue to build,” Hardman said.
· Long-term Treasury rates added to their monthlong slide Tuesday, aggravating a key yield curve inversion and sending the 10-year yield to its lowest level against the 2-year rate since 2007.
Ten-year U.S. Treasury yields fell to 1.5097%, keeping the yield curve inverted as two-year yields traded at 1.5264%, a sign of an impending recession.
In fact, the 2-year rate has exceed that of the 10-year ahead of every recession over the past 50 years and the last five 2-10 inversions have all led to recessions. Timing any forthcoming recession, however, is tougher: Even when an inversion does predict a recession, the yield curve inversion is, on average, 22 months early, according to Credit Suisse.
· The offshore Chinese yuan, sensitive to U.S.-China trade disputes, was lower Tuesday after plunging to a record low of 7.1870 against the dollar the day before. It last traded down 0.1% at 7.1770.
China’s central bank lowered its official yuan midpoint to an 11-1/2-year low on Tuesday, but stronger than traders had expected.
· The euro was up by 0.1% at $1.1113 and the index that tracks the dollar against six other currencies was l down 0.2% at 97.898.
· The pound was up 0.2% at $1.2242 and 0.1% against the euro at 90.765 pence.
· Ratings firm Moody’s downgraded its outlook for global investment banks (GIB) Tuesday from “positive” to “stable” citing the slowdown in growth, and lower or negative interest rates.
According to Moody’s, these GIBs — which includes the likes of Goldman Sachs, J.P. Morgan, HSBC and Deutsche Bank — will see their profitability come under greater pressure over the next 12 to 18 months. They will also witness low client activity due to global uncertainties, Moody’s said.
· Oil prices rose in highly volatile trade on Tuesday supported by expectations of a drawdown in U.S. crude inventories, though gains were capped by worries about a recession and uncertainty over a China-U.S. trade deal.
Brent crude was up 30 cents a barrel at $59.00 by 1:54 p.m. EDT (1754 GMT). The global benchmark hit a session high of $59.44 and a low of $58.80 during the volatile session.
U.S. West Texas Intermediate crude was up 73 cents at $54.37 a barrel after briefly rising more than $1 a barrel.
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