· The dollar fell on Tuesday in choppy range-bound trading on the eve of an expected U.S. interest rate cut from the Federal Reserve, with markets anxious about an overnight spike in dollar funding costs.
The overnight rate, or the cost for banks and Wall Street dealers to borrow dollars, surged to 10% on Tuesday, the highest since at least January 2003, according to Refinitiv data. Analysts attributed quarterly corporate tax payments and settlement of $78 billion in Treasuries supply for the spike on Monday in interest rates in the repurchase agreement (repo) market.
Though investors expect a 25 basis points rate cut, some believe this may be the last rate cut for a while absent more evidence of a U.S. economic slowdown. Money markets are pricing in about an 80% probability of another rate cut by year end.
“If the Fed does cut 25 bps, then we think it will be the last time until we really do see signs of recession,” Brown Brothers Harriman strategists said in a note.
Against a basket of its rivals, the greenback edged 0.3% lower to 98.27.
In other currencies, the euro was up 0.6% at $1.1065, catching a bid after an influential survey showed a brightening in German investor confidence.
· Deputy-level U.S.-China trade talks are scheduled to start in Washington on Thursday, the U.S. Trade Representative’s office said, paving the way for high-level talks in October aimed at resolving a bitter, 14-month trade war.
A USTR spokesman did not offer any further details about the deputy-level talks.
· U.S. President Donald Trump said on Tuesday his administration could seal a deal on trade with China before the U.S. presidential election, or an agreement could be reached the day after U.S. voters go to the polls.
Speaking to reporters aboard Air Force One as he traveled from New Mexico to California, Trump claimed that Beijing thinks he is going to win re-election, but that Chinese officials would prefer to deal with someone else.
· House Speaker Nancy Pelosi believes President Donald Trump had to challenge China’s trade practices — she’s just not sold that he took the right steps to hold Beijing accountable.
“I think the president had to do something about it, I’m just not sure he went the right way,” the California Democrat told CNBC’s Jim Cramer in an interview Tuesday. “I think we should have done it multilaterally, with the EU and the rest.”
“And what I would say is, whatever path he wanted to take to improve a trade relationship, do not empower the other side to hurt your farmers and your consumers,” she told the “Mad Money” host.
· Blackstone co-founder Stephen Schwarzman on Tuesday said he’s hearing that Chinese officials are working quickly to shut down outbound shipments of illicit fentanyl and fentanyl-related substances.
Fentanyl is a synthetic opioid 50 times more potent than heroin that has played a role in fueling the U.S. opioid crisis. The Department of Homeland Security was considering labeling fentanyl as a weapon of mass destruction earlier this year.
· The United States believes the attacks that crippled Saudi Arabian oil facilities last weekend originated in southwestern Iran, a U.S. official told Reuters on Tuesday, an assessment that further increases tension in the Middle East.
· British Prime Minister Boris Johnson told Saudi Arabia’s Crown Prince Mohammed bin Salman on Tuesday that there should be a collective response to attacks on the country’s oil facilities.
· Oil prices tumbled about 6% on Tuesday after Saudi Arabia’s energy minister said the country has managed to restore oil supplies to where they stood before weekend attacks on its facilities shut 5% of global oil output.
Saturday’s attacks raised the specter of a major supply shock in a market that in recent months has been preoccupied with demand concerns and faltering global growth. Oil surged as much as 20% at one point on Monday.
During a news conference on Tuesday, Saudi Energy Minister Prince Abdulaziz bin Salman said the kingdom has recovered supplies by tapping inventories, and lost oil output of 5.7 million barrels per day (bpd) by the end of September.
Brent crude LCOc1 futures sank $4.47, or 6.5%, to settle at $64.55 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 futures fell $3.56, or 5.7%, to settle at $59.34 a barrel.
Brent sank more than 7% during the news conference.
· Saudi oil production will be fully back online by the end of September, the kingdom’s energy minister, Prince Abdulaziz bin Salman, told the media during a news conference in Jeddah on Tuesday, sending oil prices down by more than 6% just a day after their biggest jump in history.
The kingdom’s crude exports won’t decrease, the minister said — rather, inventory stocks will be drawn down in order to meet export commitments.
· Russia is carrying out a series of large-scale military exercises with China, India and Pakistan in what experts believe is Moscow trying to send a powerful message to the West.
The military drills take place annually but Russia has upped the ante this year by inviting forces from China, India and Pakistan (as well as Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) to take part in the drills.
“This is very much an anti-American message, an anti-Western message that Russia is not isolated and Russia can operate with a potential rival — because China is very much seen both as a friend and an enemy and potential competitor to Russian interests in the future,” Mathieu Boulegue, research fellow of the Russia and Eurasia Programme at Chatham House, said in a briefing ahead of the exercises.
Reference: CNBC, Reuters
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