· The yen stood tall against its peers on Wednesday, with an inversion of the U.S. yield curve stoking recession worries and keeping the safe-haven Japanese currency in demand.
The yen traded at 105.820 per dollar JPY=, holding its gains from the previous day, when it advanced 0.35%.
The 10-year U.S. Treasury yield US10YT=RR stood at 1.484%, staying in proximity of 1.443%, its lowest since July 2016 brushed on Monday. The 10-year Treasury yield was about 4 basis points below the two-year yield US2YT=RR, and the gap between the two maturities was the widest since 2007.
At around 03:20 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.4593%, while the yield on the 30-year Treasury bond hit record low to trade at1.9072%.
The euro was nearly flat at $1.1085 EUR= after inching down 0.1% on Tuesday when it had managed to recoup some of the intraday losses on hopes that a snap election in Italy could be avoided.
The pound traded near a one-month high of $1.2310 GBP=D4 scaled overnight.
· The spread between the 10-year Chinese and US government bond yields has risen to 158 basis points, the highest level since December 2017.
Put simply, China's 10-year bond is now yielding 158 basis points more than its US counterpart. Even so, China's Yuan is losing altitude against the greenback. The USD/CNY pair is currently trading at 7.1568, the highest level since February 2008
It is worth noting that the 10-year yield spread is currently up 95 basis points on a year-to-basis while Yuan is reporting 4% losses on a year-to-date basis.
The Chinese currency has come under pressure due to escalating Sino-US trade tensions.
· Deteriorating Sino-U.S. trade ties and interest rate reforms are fueling speculation China will start cutting key rates from next month, but bankers expect borrowing costs to come down only gradually, offering limited support for the slowing economy.
· The U.S. central bank on Tuesday rejected a call from a former Federal Reserve policymaker to counter President Donald Trump’s trade agenda by refusing to “play along” and denying the president the interest rate cuts he has demanded.
“The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment,” a Fed spokeswoman said. “Political considerations play absolutely no role.”
· South Korea summoned Japan’s ambassador to protest a decision to remove Seoul’s fast-track export status, which took effect on Wednesday amid a deepening political and economic feud.
· World powers should work with the United States to get a deal with China as unfair trade practices affect everyone, former top White House negotiator Clete Willems told CNBC Tuesday.
“If folks in Japan, in the EU, U.K., France want to see more certainty around China ... they should help the United States ... to pressure China to help get a deal, ” Willems told CNBC Tuesday. “Because their companies are suffering from these very same unfair trade practices.”
· South Korea summoned Japan’s ambassador to protest a decision to remove Seoul’s fast-track export status, which took effect on Wednesday amid a deepening political and economic feud.
Japan dropped South Korea from a so-called “white list” of favored trade partners this month, which could mean more paperwork and on-site inspections for some Japanese exporters and potentially slow supplies of a range of goods.
· Oil prices rose on Wednesday, with U.S. crude gaining 1.3% after an industry report showed stockpiles in the United States, the world’s biggest oil user, fell more than expected, easing worries about economic growth due to the China-U.S. trade war.
Brent crude futures LCOc1 climbed 59 cents, or 1.0%, to $60.10 a barrel by 0652 GMT. West Texas Intermediate (WTI) crude futures CLc1 gained 70 cents, or 1.3%, to $55.63 a barrel.
U.S. crude stockpiles fell sharply last week as imports dropped, plummeting by 11.1 million barrels, compared with expectations for a 2 million-barrel draw, data from industry group the American Petroleum Institute (API), showed. [API/S]
The U.S. government’s weekly report is due Wednesday morning and if the official numbers confirm the API data then it will be the biggest weekly decline in nine weeks
Reference: CNBC, Reuters, FXStreet
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