· Upbeat U.S. economic data gave the dollar an edge over its peers on Friday, arresting a recent flight from the greenback while also supporting Asian currencies as investors toned down their recent gloom over the global economy.
Against a basket of currencies the dollar was flat at 98.387. The euro was steady at $1.1040 at 0628 GMT.
The pound has had its best week since May, adding almost 1.4% on the dollar as parliament appeared to pull Britain back from the brink of a no-deal exit from the European Union by voting to delay leaving.
Sterling was flat at $1.2328 by 0628 GMT on Friday. Asian currencies drifted slightly higher.
The safe-haven yen, which was sold to a one-month low of 107.22 per dollar on Thursday, bounced a little to 106.99, a sign of some caution creeping in.
Meanwhile, the U.S. non-farm payroll report due later on Friday is expected to show an increase of 158,000 and the unemployment rate holding steady at 3.7%. A miss could shatter already fragile sentiment.
· EUR/USD may suffer if US nonfarm payrolls data misses the 160k growth estimate for August. An underperformance in this report could bolster the case for the Fed to implement accommodative policy measures and would likely be reflected in overnight index swaps. As it stands, market participants are already pricing in a better-than-even chance of a 50 basis-point cut in October.
· The world’s two largest economies are “already in the early stages” of a second Cold War, according to Niall Ferguson, a senior fellow at the Hoover Institution at Stanford University.
Speaking to CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Friday, Ferguson said President Donald Trump was now in a position where he would be unable to prevent lasting damage to U.S.-China relations by de-escalating their protracted trade dispute.
That’s because the long-running trade conflict between Washington and Beijing was “not just about trade,” Ferguson said.
“And I don’t think President Trump any longer has the power to turn it off by doing a trade deal — which I think he intends to do at some point between now and next year’s election,” Ferguson said.
“I think he has much less control” when it comes to technological issues, Ferguson added.
· Suggestions that the next round of U.S.-China trade talks could result in some breakthrough is “a bit optimistic,” former American Commerce Secretary Carlos Gutierrez said on Friday.
“I think it’s a bit optimistic. The two sides are too far apart, this has been such a public dispute,” he told CNBC’s “Street Signs” from the China Development Forum in Beijing.
“That environment is not conducive for a deal. I think it’s good that they’re meeting, but I wouldn’t bank on a deal in the short term,” added the former U.S. commerce secretary, who’s now chairman of strategic advisory firm Albright Stonebridge Group.
Gutierrez said the U.S. and China could come to an agreement before America’s presidential election in 2020, but it has to be a “very, very good deal” that President Donald Trump can sell to voters.
· The Chinese economy is “pretty stable” currently — and that means Beijing is not in a hurry to make “monster compromises” to Washington in the trade war, said an expert from Center for Strategic and International Studies think tank.
Several analysts have predicted that China’s economy — instead of America’s — will experience a bigger hit from elevated tariffs. That’s partly because the U.S. economy is on better footing and, over the longer term, China may have more to lose because of its greater reliance on exports.
But China has so far shown that it can withstand challenges posed by the trade war, said Scott Kennedy, senior advisor of the Freeman Chair in China Studies and director of the Project on Chinese Business and Political Economy at CSIS.
“China’s economy is still pretty stable. They’ve got other trading partners, they’ve got domestic stimulus that they can use. So, they’re able to weather the storm,” Kennedy told CNBC’s “Capital Connection” on Friday from the China Development Forum in Beijing.
He added that some of the problems in the Chinese economy, such as increasing levels of debt, were addressed before the trade war broke out last year — which contributed to the current stability in China.
· Japan’s gross domestic product likely grew at a slower rate than initially estimated in further signs the Sino-U.S. trade war is hurting manufacturing investment in the world’s third largest economy.
A Reuters poll of 18 analysts predict Japan’s GDP grew at an annualized 1.3% in April-June, slower than the preliminary reading of 1.8%, reflecting slowdown in capital expenditure.
· U.S. job growth likely slowed further in August, but the pace of gains probably remains sufficient to keep the economy expanding moderately amid rising threats from trade tensions and weakness overseas that have left financial markets fearing a recession.
Nonfarm payrolls probably increased by 158,000 jobs last month after advancing 164,000 in July, according to a Reuters survey of economists. The anticipated job gains would be below the monthly average of 165,000 over the last seven months, but still above the roughly 100,000 per month needed to keep up with growth in the working age population.
The unemployment rate is forecast unchanged at 3.7% for a third straight month.
· One of the world’s biggest credit-rating agencies downgraded Hong Kong’s sovereign rating on Friday, as months of persistent conflict put the “one country, two systems” principle to the test, along with the city’s relationship with mainland China.
Fitch Ratings dropped the bombshell by downgrading the city’s rating one notch from AA+ to AA and the city’s outlook from stable to negative, which will have implications for the borrowing costs of companies and the government.
· Oil prices edged higher on Friday, with crude benchmarks poised for multi-week gains amid a sharp drawdown in U.S. crude inventories, while trade tensions eased after Washington and Beijing agreed to hold high-level talks next month.
Brent crude was up 17 cents, or 0.3%, at $61.12 a barrel by 0408 GMT, while U.S. West Texas Intermediate (WTI) crude was up 16 cents, or 0.3%, at $56.46 a barrel.
Brent is set to mark its fourth weekly gain, while U.S. crude is headed for a second weekly rise.
Beijing and Washington on Thursday agreed to hold high-level talks in early October in Washington, cheering investors hoping for an end to the trade war between the world’s two biggest economies that has brought tit-for-tat tariff hikes, chipping away at economic growth.
Reference: Reuters, CNBC, FX Street
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