· The U.S. dollar was modestly higher against the yen on Wednesday morning, but the move indicated little change in investor sentiment as the Japanese currency largely clung to its recent gains on growing fears of a global economic downturn.
The yen stood at 105.83 per dollar, 0.10% weaker on the day, but nevertheless close to the 2-1/2-year high of 104.44 hit on Monday as renewed trade tension sent investors into safe-haven assets like the Japanese currency and government bonds.
Two-year U.S. government bond yields rose further above 10-year yields, a deepening of the yield-curve inversion, a widely recognized signal of coming recession. Investors are worried that the trade conflict between the United States and China could tip the world into an economic slowdown.
The dollar index, which measures the U.S. currency against a basket of six currencies, rose 0.19% to 98.186. The Chinese yuan edged lower to 7.1690 in offshore markets, not far from the record low of 7.186 it touched on Monday.
Elsewhere, sterling slumped as much as 1% against the euro and the dollar on British Prime Minister Boris Johnson’s move to limit parliament’s opportunity to derail his Brexit plans.
A government source said the prime minister, who has vowed to take Britain out of the EU without a divorce deal if necessary, would set an Oct. 14 date for the Queen’s Speech: the formal state opening of a new session of parliament.
That would effectively shut parliament starting in mid-September for around a month and reduce the parliamentary time in which lawmakers could try to block a no-deal Brexit.
Sterling was last down 0.68% at $1.2204 and 0.62% lower versus the euro at 90.77 pence, just off the day’s lows.
The euro was slightly weaker against the dollar, down 0.11% at $1.1078 with little in the way of new economic data scheduled for Wednesday or developments to spark bigger moves.
· The rate on the benchmark 30-year Treasury bond sank to an all-time low on Wednesday while the U.S. yield curve inverted even further as fixed-income traders grew more confident in forecasts of tepid inflation and slower economic growth.
The 30-year bond yield dropped to as low as 1.907% early Wednesday morning, breaking its prior all-time low of 1.916% clinched earlier in August. The 30-year rate later moved off those lows to trade at 1.943%, still below yields on U.S. debt of far shorter duration such as 3-month and 1-month bills.
The yield curve inversion, meanwhile, continued to worsen on Wednesday. The yield on the benchmark 10-year Treasury note slumped further below that of the 2-year note — at 1.469% and 1.504%, respectively — after closing inverted for the second day in a row on Tuesday. Yields fall as prices rise.
Bond traders consider a 10-year rate below the 2-year yield an notable recession signal, marking an unusual phenomenon as bondholders receive better compensation in the short term. Before August, the last inversion of this part of the yield curve began in December 2005, two years before the financial crisis and subsequent recession.
· The Trump administration on Wednesday made official its extra 5% tariff on $300 billion in Chinese imports and set collection dates of Sept. 1 and Dec. 15, prompting hundreds of U.S. retail, footwear, toy and technology companies to warn of price hikes.
The U.S. Trade Representative's office said in an official notice here that collections of a 15% tariff will begin at 12:01 a.m. EDT (0401 GMT) Sunday on a portion of the list covering over $125 billion of targeted goods from China.
This initial tranche includes smartwatches, Bluetooth headphones, flat panel televisions and many types of footwear.
U.S. Customs and Border Protection will also start collecting a 15% tariff on Dec. 15 on the remainder of the $300 billion list, including cellphones, laptop computers, toys and clothing, USTR said in the Federal Register filing.
· San Francisco Federal Reserve President Mary Daly on Thursday said she is in a “watch and see” mode as she assesses the need for another U.S. interest-rate cut for an economy that has “strong” momentum but faces headwinds from uncertainty and a global growth slowdown.
“I’m in a watch-and-see position right now,” Daly told reporters after a speech in Wellington, New Zealand, adding that over the next few weeks she’ll be focused on what business contacts and economic data say about consumer confidence and consumer spending as well as inflation.
· San Francisco Federal Reserve President Mary Daly on Thursday signaled support for continued U.S. monetary policy accommodation, saying she believes the benefits of running a “hot” economy currently outweigh the potential costs.
“Right now, with little inflationary pressure and considerable uncertainty about the threshold for full employment, I’m biased towards including as many workers as possible in the expansion,” said Daly, who is not a voter on Fed policy this year but supported the U.S. central bank’s interest-rate cut in July.
· U.S. Treasury Secretary Steven Mnuchin said on Wednesday the United States does not intend to intervene in currency markets for now, Bloomberg News reported.
Mnuchin told Bloomberg in an interview that the situation could change in the future but that he believes such actions would be more effective if the U.S. Treasury intervened in conjunction with both the Federal Reserve and U.S. allies.
· Oil prices were up more than 1% on Wednesday after data showing a steep fall in U.S. crude stockpiles helped ease worries about weakening oil demand caused by the trade war between Washington and Beijing.
Brent crude futures were up 1.7% to $60.52 a barrel. WTI crude futures rose 1.5%, to $55.75 a barrel.
Although the two benchmarks recorded their biggest daily gains in eleven sessions on Wednesday, they are headed for monthly losses of around 7% and 4%, respectively, weighed down by trade barriers between the world’s two biggest oil consumers.
U.S. crude oil inventories fell last week by 10 million barrels, compared with analysts’ expectations for a decrease of 2.1 million barrels, as imports slowed, the Energy Information Administration said.
Gasoline stocks fell by 2.1 million barrels, compared with analysts’ expectations in a Reuters poll for a 388,000-barrel drop.
Reference: CNBC, Reuters
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